HSBC upbeat on economy as its profit jumps 10%

By Steve Slater Time of article published Nov 5, 2013

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London - HSBC produced a 10 percent rise in third-quarter profit, helped by tighter cost control and fewer losses from bad loans, Europe’s largest bank reported yesterday.

The bank confirmed it was being investigated as part of a global probe into manipulation of the foreign exchange (forex) market.

Underlying pretax profit was $5.1 billion (R51.7bn) for the three months to September – up 30 percent on a statutory basis. Strong Hong Kong and British markets accounted for more than half the earnings and offset a fall in Latin American profits.

Chief executive Stuart Gulliver said he saw evidence of a broadening recovery, in which the US should continue to grow, albeit slowly, and the UK would outperform the euro zone.

“There are signs for optimism around. We’ve always been confident China would have a soft landing… which is supportive for the rest of Asia-Pacific,” he said.

Gulliver also confirmed that HSBC was co-operating with Britain’s Financial Conduct Authority, which is leading an investigation into the $5.3 trillion-a-day forex market. The investigation has spread to include regulators in the US, Asia and Switzerland.

Traders from some of the world’s top banks, including Barclays, Citigroup and JP Morgan, have been suspended or put on leave.

HSBC, which has vowed to instil a more responsible corporate culture after it was fined a record $1.9bn last year for lax compliance with measures against money laundering, had not taken any action against its staff, Gulliver said.

“We haven’t suspended anyone. It’s at a very early stage and the names we’ve been given so far don’t work for us any more,” he said. The bank said no one had been fired.

Despite the mushrooming forex probe, with its echoes of the recent scandal over the fixing of interest rates, investors focused on HSBC’s improved quarterly performance and growth prospects.

HSBC led the FTSE 100 index higher with a 2.4 percent gain by 10am in London trading yesterday.

It kept the European banking index in positive territory after a call for higher capital requirements by the Swiss finance minister at the weekend dragged sector heavyweights UBS and Credit Suisse sharply down.

“If investors are seeking a strong and dependable bank, HSBC could be the place to look. The key metrics were, on the whole, progressive,” said Richard Hunter, the head of equities at Hargreaves Lansdown Stockbrokers.

The rise in HSBC’s profit, in line with analysts’ forecasts, was underpinned by a 4 percent dip in losses from bad loans and a $700 million fall in operating expenses to $9.6bn, although that was mainly due to the absence of one-off items last year.

Underlying costs were up on the year due to investments, wage inflation and regulatory costs. Revenues were flat.

HSBC said its capital position improved, with a core tier one ratio, a key measure of financial strength, of 10.6 percent under tough new rules.

Its leverage ratio of 4.2 percent is above an international requirement of 3 percent.

But the bank cautioned that there was significant regulatory uncertainty on the horizon as financial watchdogs around the world continued to refine new rules, insisting banks hold more capital to cushion them against any future financial crisis.

That warning was borne out at the weekend when Swiss Finance Minister Eveline Widmer-Schlumpf was quoted as saying authorities there were discussing raising the leverage ratio for Swiss banks to between 6 percent and 10 percent, two or three times the required ratio set out by the global Basel 3 accord, which is being phased in by 2019. – Reuters

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