HSBC’s global banking and markets business did better than most peers in the second quarter, benefitting from sustained demand for payments services from major corporate clients and resilient foreign exchange trading that meant revenues rose 6% on the year to US$4.06bn.
A year ago extreme volatility following Russia’s invasion of Ukraine meant FX revenues surged 57% to US$1.15bn. This time the pace relented somewhat, with revenues dropping 12% to US$1.01bn, but that was still higher than before 2022.
The overall markets business saw revenues fall 9% to US$2.21bn. Securities services was a notable outperformer with revenues up 31% to US$635m. Debt trading was flat at US$238m but equities continued to suffer, seeing revenues drop 53% to US$93m.
On the banking side revenues jumped a healthy 30% to US$2.14bn, mainly thanks to global payments solutions posting an 87% increase to US$1.12bn. Capital markets and advisory also saw a decent result, with revenues up 68% to US$252m.
That was far better than the five largest US banks, which saw a 9% decline in advisory and underwriting revenues. On the markets side, the US banks saw an 11% drop in fixed income and a 10% fall in equities trading.
In Europe, Deutsche Bank and BNP Paribas had also seen improvements over the quarter in their global banking businesses but no investment banks have been able to repeat the gains achieved a year earlier in markets, when volatility was near record levels.
“It was a strong quarter in a number of areas,” said chief financial officer Georges Elhedery, noting that the securities service and payments solutions businesses benefitted from higher rates in Asia and the Middle East.
He added that the debt capital markets business still had “capacity” to deliver more volume despite a much improved result compared with a year earlier.
Group pre-tax profits rose 89% to US$8.77bn in the second quarter and by two-thirds to US$21.66bn for the first half, helped by a US$1.5bn gain on the acquisition in March of Silicon Valley Bank UK and the reversal of a US$2.1bn writedown on the value of its French retail bank, earmarked for sale.
HSBC benefitted from higher rates across its businesses, fuelling increased net interest margin of 1.7%, up 46bp compared with the first half of 2022.
The group took US$1.3bn of credit impairments in the first half relating to commercial real estate exposures in mainland China and commercial banking charges in the UK, among other items. This was US$300m more than in the same period a year earlier, and US$900m related to the second quarter.
Overall the bank has US$8.1bn of exposure to commercial real estate in mainland China, which is booked in Hong Kong, of which two-thirds is “substandard or credit impaired”.
Noel Quinn, chief executive, said the bank was “confident” of achieving a “revised mid-teens return on tangible equity target in 2023 and 2024”. He announced a second share buyback for the year of up to $2bn and said there was “substantial further distribution capacity” expected ahead.
The Silicon Valley Bank deal brought in US$7bn of assets. Quinn said the business had bedded in quickly and taken on more customers since the transaction than it had done in the previous three months.
In June HSBC Innovation Banking was launched in Hong Kong and Israel, similar to the SVB UK proposition, which has also been rebranded along the same lines. Quinn said the aim was to use the group’s international network and balance sheet strength to expand in the technology and life sciences sectors.
“There is strong growth prospects in that business, not just for the next two or three years,” said Quinn. "I think this will be an important business for us in the five to 10 to 15 years framework. This is an important sector of the economy, and we're willing to invest in it."
He said more details about future ambitions for this division would be released at the end of the year.