Despite reporting an 86 per cent slide in statutory pre-tax profits this morning, shares in HSBC have soared and are trading up five per cent at 624.4p at time of writing. Why are investors so enthusiastic when profits are plummeting?
HSBC's bottom line is being dragged down by hefty one-off hits, such as the disposal of its business in Brazil, which set the bank back $1.7bn.
In comparison to the statutory results, the adjusted figures for the lender look much healthier, with pre-tax profits rising seven per cent to $5.6bn and outpacing analysts' expectations of $5.1bn.
The bank's tier one capital ratio, a key measure of its financial health, also looked robust at 13.9 per cent, up from 12.1 per cent at the end of June, although this was at least partly thanks to regulatory changes surrounding the lender's investment in China's Bank of Communications.
Read more: Profit slump expected for HSBC this quarter
"The underlying business numbers from HSBC were pretty positive, with costs and revenues both heading in the right direction, and the bank's capital position improving significantly, though this was largely down to a change in regulatory requirements," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
Russ Mould, investment director at AJ Bell, added: "The share price is rising because HSBC may be shrinking its way back to health – the Brazilian disposal means risk-weighted assets continue to fall sharply, key regulatory ratios like common tier 1 equity [capital ratio] continue to improve and loan impairment charges remain low at just $453m for the quarter."
However, David Cheetham, market analyst at XTB, noted the sharp rise in shares on the less-than-perfect results could be because shareholders "possibly viewed it as a final low before a recovery ahead".