HSBC reports 6% fall in profits

Bank to increase dividend despite disappointing dip in annual results

HSBC, Europe’s largest bank, yesterday pledged to increase its dividend despite a disappointing drop in annual profits as disposals and strong growth in Hong Kong and other core Asian markets boosted its balance sheet.

The London-headquartered bank has closed or sold 47 businesses and cut 38,000 jobs over the past two years to squeeze costs, manage risk and re-establish itself as one of the best capitalised banks in the world.

Already one of the highest dividend payers among Britain’s blue-chip companies, HSBC said it would bump up its first three interim payouts on 2013 earnings by 11 per cent to $0.10 (€0.07) per share.

“This is the beginning of the return to a more normal usage of our earnings,” chief executive Stuart Gulliver said in a conference call.

But improving profitability has proved more difficult due to a weak global economy and the cost of regulation across dozens of countries.

Gulliver, who took the helm at the start of 2011, insisted the bank could still meet its 2013 target for return on equity, a key measure of profitability, of 12-15 per cent despite it falling to 8.4 per cent last year.

“While the operating environment for financial institutions remains difficult, our core business will continue to reap the benefit of recovering economic growth in mainland China and its positive impact on other faster-growing regions,” he said.

The bank said yesterday it made a 2012 pre-tax profit of $20.6 billion (€15.8 billion), down six per cent from the previous year and below the average forecast of $22.7 billion (€17.5 billion) from 28 analysts polled by Reuters. Profits were hurt by a $5.2 billion (€4 billion) loss on the value of its own debt.

HSBC’s London shares were down over three per cent at 705 pence in early trade, lagging the benchmark Stoxx Europe 600 Banks Index, which was 1.4 per cent weaker. Before yesterday, HSBC’s stock had risen nearly 30 per cent over the past 12 months, outperforming the benchmark’s nine per cent gain in the same period.

“The results have been slightly disappointing from an earnings perspective,” said Gary Greenwood, analyst at Shore Capital.

“But its balance sheet has strengthened quite a bit over the year. This time last year people were disappointed with its capital position but during the year it resolved that.”

HSBC also has a listing in Hong Kong, where it was founded in 1885.

HSBC was fined a record $1.9 billion (€1.46 billion) in December for anti-money laundering lapses in the US and Mexico which Gulliver called “shameful”.

The CEO is hoping a more streamlined structure will ensure risk and compliance are better managed across a bank that spans 80 plus countries and 60 million customers. The bank yesterday said it had set aside an extra $1.4 billion (€1.07 billion) to cover claims for mis-selling insurance products and interest rate hedging products in the UK.