Punished For Good Behavior

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What's going on?

HSBC, Europes biggest bank, reported better-than-expected quarterly results on Tuesday.

What does this mean?

Higher interest rates might mean mortgage nightmares for the rest of us, but the recent hikes are like Christmas came early for the likes of HSBC. The firms net interest income the money it makes from lending minus the interest it pays out on deposits hit an imposing $8.6 billion last quarter, its best third quarter in over eight years.But there was some coal among the presents: the bank set aside $1.1 billion to cover costs in case borrowers default on debts about a third more than analysts expected. But the firms bumper net interest income still carried the day, as pre-tax profit rose a cool 18% from the same time last year to hit $6.5 billion.

Why should I care?

For markets: Iffy investors.
HSBCs shares fell 4% when the report went live, and a few factors could be to blame. First off, that hefty $1.1-billion rainy day fund will have investors all het up about potential trouble ahead. Secondly, its starting to seem likely that share buybacks wont make a comeback until the second half of 2023 at the earliest. And completing the troubling trifecta, HSBCs well-regarded CFO is leaving without much of an explanation, which could mean theres trouble a-brew in the bank.

The bigger picture: Due east.
Despite investors caution, HSBCs results should strengthen its hand against Ping An Insurance Group, a major shareholder thats been calling for it to separate its Asian and western operations. HSBCs resisted so far, adamant that its pivot toward Asia where it made over 55% of pretax profit last quarter is a smart bet. So far, the banks made eastward strides, shedding its western operations: its French and US arms have already gone under the hammer, and Canadas could be the next.

Originally posted as part of the Finimize daily email.

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