HSBC Holdings Plc. rose the most since April after it announced a $2.5 billion stock buyback for this year and said it plans more share repurchases while keeping its dividend at the current level for the foreseeable future.

Chief Executive Officer Stuart Gulliver is returning half the equity freed up from selling the bank’s Brazil unit, with the rest boosting the firm’s capital ratio to 12.8 percent. That outweighed concerns about profitability, as pretax earnings fell 45 percent to $3.61 billion from a year earlier, and the bank removed a target of surpassing a 10 percent return on equity by the end of next year.

“There is absolutely an intention to be in a position to do further buybacks,” using capital no longer needed by its shrinking U.S. operations, Finance Director Iain Mackay said on a conference call with analysts. The Federal Reserve approved the firm’s U.S. unit returning “substantial” capital to the parent company next year, which “could lead to another buyback,” he said.

Eoin Treacy's view

HSBC does what very few lenders can do at present; it pays a substantial dividend. By keeping the level unchanged, the 12-month yield of 6.86% will be maintained for another year which ensures investors at least three more dividend payments before the rate is next questioned. 

The share trended lower for three-years as stress in the Chinese banking sector, the Eurozone crisis and fines for helping clients break sanction in the US all took a toll on the perception the bank was capable of sustaining a global business. It lost downward momentum from early March and rallied over the last three weeks to break the medium-term downtrend. A sustained move back below the trend mean would be required to question medium-term scope for additional upside. 

HSBC represents a clear outperformer relative to the FTSE-350 Banks Index which failed to sustain the break to new lows in late June and remains in a reversionary rally back up towards the mean.