HSBC says H1 profit rose 5 percent, announces up to $2 billion share buyback

By Sumeet Chatterjee and Lawrence White

HONG KONG/LONDON (Reuters) - HSBC Holdings PLC on Monday said profit rose 5 percent in the first half of the year, beating analyst estimates, and announced its third share buyback in the past year on the back of a growing capital base.

Pretax profit reached $10.2 billion in the six months through June, from $9.7 billion in the same period a year earlier, HSBC said in a statement. The result compared with the $9.5 billion average estimate of analysts polled by the bank.

HSBC also announced an up to $2 billion share buyback, as it uses excess capital to offset the dilutive effect of shares paid out as dividends. It completed a previously announced $1 billion buyback in April.

Europe's biggest bank said it expected to commence the latest buyback shortly for completion in the second half of 2017.

The announcement takes the total of HSBC share buybacks since the second half of 2016 to $5.5 billion.

HSBC, like many global banks, spent the years up to the 2008 financial crisis building its empire. Recent years have seen it cut jobs and sell assets worldwide to shrink the group back to profitability and maintain dividend payouts in an era of stricter banking regulations.

"In the past 12 months we have paid more in dividends than any other European or American bank and returned $3.5 billion to shareholders through share buybacks," Chief Executive Officer Stuart Gulliver said in HSBC's earnings statement.

"We have done this while strengthening one of the most resilient capital ratios in the industry."

The bank said its common equity tier 1 ratio - a measure of financial strength - was 14.7 percent at the end of June, from 14.3 percent three months prior, and 12.1 percent in the year-earlier period.

The ratio is set to increase further as the bank repatriates about $8 billion stuck at its U.S. subsidiary, following approval last year from the U.S. Federal Reserve.

HSBC has kept its dividend payout ratio higher than many peers in recent years, including last year when a slowdown in banks' earnings growth prompted rivals such as Standard Chartered PLC to withhold payments.

HSBC's dividends totalled $10.1 billion in 2016, $10 billion in 2015 and $9.6 billion in 2014.

The bank, which makes over half of its profit in Asia - the bulk in Hong Kong and China - said pre-tax profit in Asia rose 7 percent in the first half to $7.6 billion, mainly helped by stronger wealth management and insurance revenue in Hong Kong.

"We continue to shift the group's business mix towards Asia, building on our improved financial performance and strong customer acquisition in the region since June 2015," Gulliver said.

HSBC won approval last month in China to establish an investment banking joint venture with a state-backed fund, ending a 20-month wait, making it the first such joint-venture in China to be majority-owned by a foreign bank.

The venture will allow HSBC to expand in the world's second-largest economy, and is central to its ambition to increase profit from the fast-growing Pearl River Delta region.

The new business was likely to launch in December, the bank said.

(Reporting by Sumeet Chatterjee and Lawrence White; Editing by Christopher Cushing and Stephen Coates)