Saturday 21 September 2019

HSBC Q3 profit beats estimates as compliance spending cuts costs of fines

HSBC is Europe's largest bank by market value
HSBC is Europe's largest bank by market value

Lawrence White

HSBC reported a better than expected 32pc rise in pretax profit for the third quarter, thanks to reduced costs from fines and settlements with regulators as heavy spending on compliance by Europe's biggest bank begins to take effect.

HSBC said costs from regulatory punishments fell $1.4bn from the third quarter of last year, showing progress on reforming its conduct at a time when the British government is keen to move on from the financial crisis to a more accommodative stance towards the industry.

Recent quarterly earnings reports for the bank have been marred by provisions for regulatory investigations, including allegations that HSBC and other banks rigged foreign exchange markets worldwide and that HSBC helped Swiss clients evade taxes.

The British lender said in a filing to the Hong Kong stock exchange on Monday its total spending on regulatory programmes and compliance rose to $2.2bn in the first nine months of the year, up 33pc from the same period last year.

Quarterly pretax profit was $6.1bn, up from $4.6bn in the same period a year ago, it said. That was more than the consensus estimate of $5.2bn, based on the average of analysts' forecasts compiled by the bank.

Underlying revenues, though, fell 4pc to $15.1bn compared with the same quarter last year, hit by plunging stock markets and slowing economic growth in Asia.

"HSBC management have done a very good job of trying to correct its internal problems, but these results show no bank can improve revenues if the global economy is against it," said Jim Antos, analyst at Mizuho Securities Asia in Hong Kong.


The earnings update gave investors a first chance to check on progress on the 10 goals HSBC's management set itself in June, including reducing risk-weighted assets by 25pc, selling operations in Turkey and Brazil and cutting $4.5-5bn in costs.

HSBC said it was nearly 30pc of the way towards completing the reduction in its assets, and achieved $400m in overall cost savings versus the second quarter of this year.

Perhaps the most-watched of the ten goals by investors is the bank's strategic review into whether it should move its headquarters out of Britain, with Hong Kong seen as the most likely destination.

HSBC said it had made progress on this but the decision could slip beyond the year-end deadline originally set, echoing comments made by Chief Executive Stuart Gulliver in October.


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