Wednesday 26 October 2016

HSBC needs more time to consider London exit

Stephen Morris

Published 03/11/2015 | 02:30

The HSBC Holdings Plc headquarters sits in the Canary Wharf business, financial and shopping district of London. Photo: Bloomberg
The HSBC Holdings Plc headquarters sits in the Canary Wharf business, financial and shopping district of London. Photo: Bloomberg

HSBC, Europe's largest bank, offset a drop in third-quarter revenue with lower costs and litigation charges while saying it needs more time to determine whether to move its headquarters from London.

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Operating costs fell 19pc to $9bn from a year earlier, London-based HSBC said in a statement yesterday. That beat the $9.4bn estimate of 14 analysts in a company-compiled survey.

Revenue slipped 4.4pc to $15.1bn, while pre-tax profit rose to $6.1bn from $4.6bn a year earlier.

Chief executive Stuart Gulliver unveiled a three-year plan in June to pare back a sprawling global network, shut money-losing businesses and eliminate as many as 25,000 jobs after compliance costs surged. While other British lenders including Barclays set aside more money for past misconduct in the third quarter, HSBC benefited from a $1.4bn decline in fines, settlements and redress for UK customers.

"HSBC's reassuring dullness shines through," said Ian Gordon, an analyst at Investec with a buy rating on the stock.

"Revenue weakness was concentrated in retail banking and wealth management and the investment bank, but strong cost and impairment performances delivered a resilient result which, in a challenging quarter for UK banks, offers modest encouragement."

At the retail banking and wealth management division, adjusted pretax profit fell to $1.5bn from $2.1bn a year earlier. In global banking and markets, which houses the investment bank, profit more than doubled to $2bn, while revenue fell 4.8pc to $4.3bn amid "challenging market conditions."

Global private banking reported a drop of 96pc to $8m.

"The revenue weakness was mainly due to weaker markets," said Raul Sinha, an analyst at JPMorgan Chase with a neutral rating on the stock.

"Overall, this was an in-line quarter, with little to get excited about" as the bank continues to build capital "and tries to bring down costs despite regulatory and inflation pressures."

The bank, which has been generating most of its earnings in Asia, is assessing whether to move its headquarters away from London, partly because of increasing taxes and some of the strictest bank regulations in the world.

Among the criteria listed as part of its assessment are also economic growth and long-term stability.

The board requested "further information," with a further update planned for early 2016 instead of at the end of this year, according to the statement.

Pretax profit in Asia rose 2pc to $3.5bn in the quarter from a year earlier and impairments on bad loans fell 16pc to $638m.

HSBC has said half of $180bn to $230bn of risk-weighted assets it plans to redeploy under a revised strategy will be invested in Asia, as it adds some 4,000 jobs in China's Pearl River Delta region over the next three to four years.

"Despite slowing growth in the mainland Chinese economy and market volatility in Asia, there has been no visible impact on our Asian credit quality," Mr Gulliver said in the statement. (Bloomberg)

Irish Independent

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