The news sent HSBC shares up three percent to a four-year high of 764 pence each in London, as the bank signaled further buybacks and confidence it can continue to improve revenues from growth in Asia.
Chief Executive Officer Stuart Gulliver and Chairman Douglas Flint are both retiring, leaving a legacy of improving revenue and returning more capital to shareholders, having focused on trimming the bank's empire and shifting its focus eastwards.
The latest share buyback, of up to $2 billion, comes as HSBC uses excess capital to offset the dilutive effect of shares paid out as dividends. It completed a previously announced $1 billion buyback in April.
The buybacks and sustained dividends show HSBC further ahead in its turnaround compared with British-based rivals including Barclays and Standard Chartered which have suspended payouts as they restructure.
"The return of capital comes from the fact that the business is very accretive, very profitable ... the dividend is 51 cents for the foreseeable future," HSBC Finance Director Iain Mackay told Reuters on Monday.
HSBC said its common equity tier 1 ratio -- a measure of financial strength -- was 14.7 percent at the end of June, the highest among major European banks.
The ratio is set to increase further as the bank repatriates about $8 billion stuck at its U.S. subsidiary, following approval last year from the U.S. Federal Reserve, potentially enabling further buybacks.
"I cannot tell you whether we'll do a further buyback this year, but we are using buybacks as a regular part of the toolkit to manage returns to shareholders," Gulliver told reporters on a conference call.
The latest buyback will take the total of HSBC share buybacks since the second half of 2016 to $5.5 billion.
HSBC's dividends totaled $10.1 billion in 2016, $10 billion in 2015 and $9.6 billion in 2014.
For the half-year through June, pretax profit rose to $10.2 billion from $9.7 billion in the same period a year earlier, a result that compared with the $9.5 billion average estimate drawn from analysts polled by the bank.
Gulliver, who is set to retire from HSBC next year, said he could be at HSBC as late as December 2018 if an external candidate is appointed by incoming Chairman Mark Tucker.
Former AIA Group Chief Executive Tucker, HSBC's first ever externally appointed chairman, is set to take up the role on Oct. 1.
Gulliver and Flint have bet on Asia, where the bank makes three quarters of its profits, to drive further returns.
The bank announced two years ago it would hire 4000 staff and lend more in China's southern Pearl River Delta region, a plan that has since encountered some setbacks as China's growth slowed, showing both the risks and opportunities.
"The key driver of the bank's performance will be the east, not the west, positioning the bank well to capitalize on the growth of developing Asian economies, though that of course comes with a risk warning attached," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
HSBC on Monday said pre-tax profit in Asia rose 7 percent in the first half to $7.6 billion, mainly helped by stronger wealth management and insurance revenue in Hong Kong.
HSBC won approval last month in China to establish an investment banking joint venture with a state-backed fund, ending a 20-month wait, making it the first such venture in China to be majority-owned by a foreign bank.
The venture will allow HSBC to expand in the world's second-largest economy, and is central to its ambition to increase profits by allowing the bank to underwrite and trade corporate bonds in China's domestic market.
The venture will be opened in December and staffed at first by around 50 people, Gulliver told Reuters on Monday.
(Reporting by Sumeet Chatterjee and Lawrence White; Editing by Christopher Cushing and Stephen Coates)
By Sumeet Chatterjee and Lawrence White