HSBC’s quarterly profits have increased by more than forecasts of $3.2bn (£2.8bn) had predicted as the bank enjoys a windfall from rising interest rates, fuelling calls for an excess profits tax on UK banks.
The lender reported pre-tax profits of $700m more than average analyst estimates, boosted by an increase in net interest income, which is the difference between what the bank charges for loans and what it pays in interest on deposits.
Net interest income jumped by a third to $8.6bn in the three months to the end of September.
The Liberal Democrats are now calling for a windfall tax on the sector, as the chancellor, Jeremy Hunt, and new prime minister, Rishi Sunak, look at ways to plug a £40bn hole in the public finances.
The Lib Dem MP and Treasury spokesperson, Sarah Olney, said: “The public will find it hard to stomach banks raking in large profits whilst their mortgage bills spiral out of control.
“The chancellor should certainly explore taxing excess profits from the banks, especially if the alternative is painful cuts to our public services.”
The Bank of England has increased rates to 2.25% from record lows of 0.1% last year, in an attempt to tackle inflation.
Those rate rises, as well as fallout from the disastrous Liz Truss mini-budget, sent mortgage and loan rates soaring for everyday customers.
The chancellor is considering whether to scrap a planned reduction in the surcharge, a special tax levied on banks. It was set to fall from 8% to 3% in April 2023, to compensate for a rise in corporation tax.
Olney said that the government should “rule out” cutting the bank surcharge. “The fact Conservative MPs want to slash taxes on big banks whilst imposing spending cuts on hospitals and schools is a disgrace. It shows just how out of touch this Conservative government has become,” she added.
HSBC’s chief executive, Noel Quinn said during Tuesday’s results presentation he would prefer the government to avoid raising taxes for UK banks.
“The financial services sector already pays an amount of tax that’s in excess of normal corporates in the UK … so I would hope that there isn’t a windfall tax, but that’s a matter for the chancellor to decide,” Quinn said.
While HSBC’s third quarter profits were down 42% from the same period last year, the bank was facing tough comparisons. That was partly due to a $2.4bn charge linked to the pending sale of its French retail bank, and the fact that – like most lenders – HSBC was releasing cash that it had originally put aside for defaults during the Covid crisis last autumn.
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HSBC said on Tuesday it had put aside $1.1bn to protect itself against potential defaults in the third quarter. That is more than the $884m analysts had expected, and compares with the $659m it released last year.
That included a $300m charge related to the UK business, the bulk of which was meant to protect against “heightened economic uncertainty”. The chief financial officer, Ewen Stevenson, said rival banks were likely to take similar charges as they prepare for a “mild recession” in the UK.
The bank said economic conditions had deteriorated due to the invasion of Ukraine and the continued effects of the Covid pandemic, which together led to surging inflation, higher interest rates and volatility across financial markets.
Inflation had also squeezed the finances of its borrowers, forcing HSBC to put aside more cash for potential defaults.
The lender noted the impact of the UK government’s disastrous mini-budget last month, which sent financial markets into a tailspin, pushed some lenders to withdraw mortgage products, and forced the Bank of England to intervene with a £65bn emergency bond-buying programme to prop up some pension funds.
“It’s been a challenging few weeks. I’m pleased to see the market has stabilised and it’s good to have a decision on the new prime minister so that we have stability politically as well,” Quinn said.
