By Rochelle Toplensky

Even as China has mounted a stronger fightback against Covid-19 than its Western peers, China-focused HSBC has lost its exceptionalism among European banks. Winning it back won't be as easy as Tuesday's share-price jump might suggest.

The London-headquartered bank announced better-than-expected third-quarter results. Reduced interest revenue was offset somewhat by lower credit losses than in the first half of the year, strong results from life insurance, and a pickup in trading as seen at the big Wall Street banks. Chief Executive Noel Quinn said he is more optimistic this quarter and, importantly, raised the prospect of restarting dividend payouts next year.

HSBC had been a reliable dividend payer for decades. Like all U.K.-regulated banks, though, it was forced by British officials to suspend its payout this year. Its sizable base of individual investors in Hong Kong were livid. The lender earns most of its revenue and profit in Asia.

With a solid 15.6% core equity ratio at the end of the third quarter, HSBC hopes to restart dividends next year, but payouts will be "conservative" and subject to U.K. regulators' approval. Buybacks aren't likely anytime soon.

Despite rising 7% in morning trading Tuesday, the shares are still down more than 40% this year, massively trailing the 12% drop in the Hong Kong market's Hang Seng Index. Historically, the stock enjoyed a premium over European rivals because of its exposure to Asian growth, but it has faded in recent years.

Geopolitical tensions, which seem unlikely to end with next week's election, have made it increasingly difficult for the lender to find a path that keeps both East and West happy. China's stronger security stance in Hong Kong and the Huawei fracas have been particular flashpoints, raising the specter of the bank being labeled an unreliable entity by Beijing.

HSBC's other challenges are more familiar to bank investors. This year, risks around the economic impact of the pandemic and unwinding government support have taken center-stage. Brexit is another minefield: The lender faces as much as $1 billion in additional credit losses if the U.K. fails to reach a trade deal with the European Union, says Chief Financial Officer Ewen Stevenson.

Like all banks, HSBC also must adapt to persistent ultralow interest rates. It plans to cut costs using digital technology and raise fee-based income by extending its insurance, wealth and asset-management businesses beyond Hong Kong into China and South Asia. The company is eight months into a three-year overhaul to pivot even more toward Asia and cull European and U.S. operations. It has promised an update in February.

The bank's performance through what Mr. Quinn characterized as "challenging times" hasn't been bad. But Asian connections that once were a path to growth are now a mixed blessing. Given the simmering China-U.S. tensions, that doesn't seem likely to change -- however soon HSBC gets back to paying dividends.

Write to Rochelle Toplensky at rochelle.toplensky@wsj.com

(END) Dow Jones Newswires

10-27-20 1044ET