HSBC reiterates capital level to return after Hang Seng buyout

HSBC (0005) has reaffirmed that its capital levels will gradually recover to target ranges following the completion of its privatization of Hang Seng Bank (0011).

The group reiterated that upon the deal's completion, its capital level would see a net decrease of approximately 125 basis points, potentially falling below its target. However, it expects its Common Equity Tier 1 (CET1) ratio to return to the 14 percent to 14.5 percent target range through organic capital generation and by not launching new share buybacks.

As of the end of September, HSBC's CET1 ratio was 14.5 percent, down 0.1 percentage points from the end of June.

The bank forecasts a return on tangible equity (ROTE) of about 15 percent or higher for this year, excluding notable items. This projection includes a capital benefit from pausing further share buybacks following the announcement of the Hang Seng privatization plan. 

However, ROTE for the current quarter is expected to see a seasonal decline due to reduced client activity in its wealth management business and the impact of costs like the UK bank levy.

In other financial updates, HSBC reported net interest income of about US$25.6 billion (HK$199.7 billion) for the first nine months, a year-on-year increase of over 4 percent. The net interest margin for the period remained flat at 1.57 percent. 

For the third quarter alone, the margin was also 1.57 percent, rising 11 basis points year-on-year and 1 basis point quarter-on-quarter. 

In addition, HSBC has raised its full-year forecast for net interest income from its banking business to US$43 billion or more.