FTSE 100 heavyweight HSBC saw shares fall today despite announcing a $2billion share buyback after it posted a surprise drop in profits.
The banking giant said profit before tax fell by 4 per cent in the first quarter to $4.8billion (£3.5billion) as it stepped up investments in its retail banking operations in the UK and China.
Higher investments mean operating costs rose by 13 per cent to $9.4billion (£6.9billion), outpacing revenues growth of 6 per cent at $13.7billion (£10.1billion) in the first three months of the year.
Share buyback: HSBC announced it would return a total of $2billion to shareholders
HSBC also announced it would return a total of $2billion to shareholders, but said this would be the only share buyback programme this year. Last year, it returned $3billion to shareholders.
HSBC, which is listed in the UK and Hong Kong, saw shares fall by 3.4 per cent overnight in Asia and by 2.5 per cent in London.
Chief executive John Flint, who took the helm in February, said: ‘Strong capital, liquidity and robust balance sheet continue to support strong revenue growth from retail and corporate customers across our network. This has enabled us to announce a further share buyback.
‘We are investing to grow revenue further.’
The bank also said it had set aside $897million to cover the cost of ‘legal and regulatory matters’ in relation to its mis-selling of mortgage-backed securities in the US in the run up to the 2008 financial crisis.
The bank, which made over 75 per cent of its profits in Asia last year, is looking to expand further into Asia and China in particular, continuing with a plan launched in 2015.
Charlie Huggins, manager of the HL Select UK Income Shares fund, which holds shares in HSBC, said:
‘HSBC’s vision is to become the premier bank for facilitating business between China and the rest of the world. Investment is being poured into China’s Pearl River delta region and early signs are encouraging.
‘The vast expansion of Chinese infrastructure and industrial capacity seen in recent decades bodes well for the region’s future growth and HSBC should be well placed to benefit.’
He also noted that the share buyback of $2billion is earlier, but also lower than expected.
‘The increased investment for growth suggests that management are feeling more confident in their prospects. However, it will weigh on near term returns. We expect the shares to be a bit weaker this morning as investors focus on the latter and await evidence that these investments are paying off,’ he added.