By Margot Patrick and Julie Steinberg

HSBC Holdings PLC's third-quarter earnings Monday were hit by a $1.74 billion charge to exit Brazil, but a growing capital buffer at the bank raised hopes of extra payouts for shareholders in the years ahead.

HSBC's main capital ratio jumped to 13.9% at Sept. 30 from 12.1% at the end of June, boosted by a regulatory change in how it accounts for its stake in China's Bank of Communications. Analysts said that was good news for HSBC's dividend, and the prospect of more share buybacks once a program currently under way is completed.

HSBC has been pulling out of dozens of countries and businesses since 2011 to improve returns. Selling its Brazil business to Banco Bradesco SA in July contributed to it reporting a $204 million net loss in the quarter, against a $5.23 billion net profit in the same three months of 2015. The slumping pound and moves in the U.S. dollar against the Mexican peso also weighed on earnings, the bank said.

The weak results come against the backdrop of concerns about its Asia strategy and questions about the effects of the U.K. vote to leave the European Union. On Thursday, a U.K. court ruled that Prime Minister Theresa May can't start the exit process without approval from Parliament.

In the U.K., one of the bank's home markets along with Hong Kong, HSBC said mortgage lending and loans to small businesses rose in the third quarter, easing concerns that Brexit would stall activity.

Chief Executive Stuart Gulliver in an interview said the economic response so far is reassuring. "What we obviously are concerned about is if next year we see lower GDP growth and higher inflation. Then the overall dynamic may start to shift."

On a pretax basis, the bank's profit plunged 86% to $843 million from $6.1 billion. Its adjusted revenue rose 2% to $12.79 billion, due in part to higher contributions from its fixed income businesses as the bank gained market share in Europe, HSBC said.

HSBC shares have risen more than 11% since August, when it unveiled a plan to spend up to $2.5 billion in the second half to repurchase shares. Shares were up 2.3% in Hong Kong after the earnings announcement.

The bank said it has completed 59% of its share-repurchase plan, which is expected to conclude in late 2016 or early 2017.

Writeto Margot Patrick at margot.patrick@wsj.com and Julie Steinberg at julie.steinberg@wsj.com

(END) Dow Jones Newswires

November 07, 2016 02:58 ET (07:58 GMT)

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