HSBC’s 9% gain in profit falls short of predictions

Commuters wait for a tram in front of an HSBC Holdings Plc advertisement in the central district of Hong Kong, China, on Thursday, Feb. 20, 2014. HSBC is scheduled to release annual results on Feb. 24. Photographer: Brent Lewin/Bloomberg

Commuters wait for a tram in front of an HSBC Holdings Plc advertisement in the central district of Hong Kong, China, on Thursday, Feb. 20, 2014. HSBC is scheduled to release annual results on Feb. 24. Photographer: Brent Lewin/Bloomberg

Published Feb 25, 2014

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London - HSBC missed market expectations with a 9 percent increase in annual pretax profit as it warned yesterday of greater volatility in emerging markets this year, sending its shares down 4 percent.

Europe’s largest bank has axed more than 40 000 jobs and sold or closed 60 businesses over the past three years to cut costs, but still missed targets for cost efficiency and return on equity last year.

“Although much progress has been made since 2011, we did not meet all of our targets by the end of 2013,” chief executive Stuart Gulliver said.

Gulliver’s pay, including salary and bonuses, rose last year to $8 million (R87m) from $7.5m and overall the bank increased its bonus pool for staff by 6 percent to $3.9 billion. The increase comes despite pressure on banks to rein in big bonuses that many blame for fuelling the risk-taking that led to the 2008/09 financial crisis.

HSBC plans to start paying hundreds of top staff a new quarterly allowance, effectively increasing the amount of their fixed pay to meet a new EU law capping bonuses at 200 percent of salary, which Gulliver said had made pay plans more complex.

His team is under pressure to show how it can replace income lost from the sale of US businesses and a stake in a Chinese insurer, and worries that Asia’s economic growth is slowing.

“Having made good headway in pulling out of low-quality businesses, they are now facing the headwinds of emerging markets,” Chris Wheeler, an analyst at Mediobanca, said. “It’s not a disaster, but they are paddling hard to make any progress.”

The bank is performing strongly in Hong Kong, where profits hit $8bn last year, and gets half of its profits from the rest of Asia-Pacific, the Middle East and Latin America.

Gulliver said he remained optimistic about the longer-term prospects for emerging markets, which have been hit hard by a US decision to wind down monetary stimulus measures, but warned of “greater volatility in 2014 and choppy markets”.

HSBC’s shares, which have underperformed European rivals so far this year because of its greater exposure to markets in Asia, the Middle East and South America, were down more than 4 percent in mid-morning trade.

The bank reported a pretax profit for last year of $22.6bn, up from $20.6bn in 2012 but below the average forecast of $24.3bn in a Thomson Reuters poll.

Shutting businesses hit the bank’s revenues, which fell 5 percent. Stripping out the impact of disposals, its underlying revenue increased to $63.3bn from $61.6bn.

HSBC’s investment bank reported a flat fourth quarter, with pretax profit of $1.87bn.

Operating expenses dropped by $4.3bn last year, less than the $5bn decline anticipated by analysts. – Reuters

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