By Simon Clark 

LONDON -- HSBC Holdings PLC's shares rose after the bank took fewer provisions for bad loans in the third quarter and said it might pay a "conservative" dividend, the latest global bank to strike a cautiously optimistic note on a potential economic recovery from the coronavirus pandemic.

The London-based lender with Asian roots set aside $785 million in provisions for bad loans in the quarter, lower than expected and less than a third of the amount set aside in each of the first and second quarters of 2020. HSBC's shares rose almost 7%.

In another positive sign for European banks, Spain's Banco Santander SA lowered its bad-loan charges in the third quarter, posting better-than-expected profit for the period. Santander's shares rose more than 4%.

Ana Botin, Santander's executive chairman, said customers are recovering faster than anticipated from the pandemic shock, driving its forecast for loan-loss provisions down for the entire year. U.S. banks also had a positive third quarter despite the pandemic and recession, with JPMorgan Chase & Co. reporting a rise in profit and Citigroup Inc. and Goldman Sachs Group Inc. delivering better-than-expected results.

HSBC also beat earnings estimates, reporting net profit of $1.36 billion in the three months ended Sept. 30, down 54% from $2.97 billion in the same period last year. Chief Executive Noel Quinn said the results were promising because of the lower credit losses and strong capital and liquidity levels.

In addition to navigating the coronavirus crisis, HSBC is embroiled in a political clash between Beijing and Washington over the status of Hong Kong. When HSBC's top Asia executive endorsed China's extension of a national-security law to the port city in June, Secretary of State Mike Pompeo described the act as a "show of fealty."

"Geopolitical risk, particularly relating to trade and other tensions between the U.S. and China, remains heightened," HSBC said Tuesday. "Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment."

HSBC also angered Chinese authorities by sharing information about telecommunications-equipment company Huawei Technologies Co. with U.S. prosecutors in 2016. Investors are concerned the bank could be put on an "unreliable entities" list in China that would threaten its plans to expand its retail and commercial banking in the world's most populous nation.

Such a move by Chinese authorities would complicate HSBC's strategy of refocusing on its Asian heartland, where it makes most of its profit. Mr. Quinn said in February that he plans to shed 15% of the bank's 235,000-strong workforce by cutting business lines and customer relationships in the U.S. and Europe. HSBC was founded in Hong Kong in 1865 and moved its headquarters to London in the 1990s. HSBC said it employed 230,317 people as of Sept. 30.

HSBC's decadeslong strategy of expanding across Europe, Asia and the Americas is "defunct," Manus Costello, a banking analyst at Autonomous in London, wrote in a note in September. "The intention to generate profits from outside Asia has largely failed."

Mr. Quinn quashed speculation that the renewed focus on Asia may lead to HSBC's headquarters moving back to Hong Kong.

"We're not intending to review the domicile of the bank," Mr. Quinn told journalists. "We took that decision a few years ago and we do not see any reason to revisit that decision."

HSBC is starting a new digital wealth planning and insurance unit in China called Pinnacle, which will hire between 2,000 and 3,000 employees in the next four years. Pinnacle has obtained a fintech license in China, a first for a foreign financial institution in the country, Mr. Quinn said.

Shares of HSBC have fallen 42% this year and recently touched a 25-year low. Many other bank stocks have tumbled as the coronavirus wreaked economic damage and forced central banks to slash interest rates, which makes it harder for lenders to earn profit. The Stoxx Europe 600 Banks index has fallen 39% this year.

The bank said it may pay a "conservative dividend" for 2020 if regulators permit it. The Bank of England this year told U.K. banks not to pay dividends to conserve cash during the pandemic.

HSBC set aside $3.83 billion and $3 billion in provisions for losses from loans in the first and second quarters, respectively, making a total of $7.64 billion so far this year.

Ewen Stevenson, HSBC's chief financial officer, said the bank could add between $500 million and $1 billion in provisions in the fourth quarter if the U.K. and European Union fail to reach a trade agreement in the next few weeks.

Write to Simon Clark at simon.clark@wsj.com

 

(END) Dow Jones Newswires

October 27, 2020 08:46 ET (12:46 GMT)

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