Wednesday 14 November 2018

HSBC profits hit by costs as growth plan weighs on revenue

‘We are investing to win new customers,’ said CEO John Flint. Photo: Anthony Kwan/Bloomberg
‘We are investing to win new customers,’ said CEO John Flint. Photo: Anthony Kwan/Bloomberg

Alun John and Lawrence White

HSBC posted a small increase in first-half pre-tax profit, as rising expenses from investments in a new growth strategy and a $765m (€661m) provision against the sale of US mortgage securities ate into higher revenues.

Europe's biggest bank, which is shifting into growth mode after years of shrinking its global empire and restructuring the business, reported a pre-tax profit of $10.7bn (€9.3bn) in the six months through June, up 4.6pc from the year-ago period.

As the bank spent on hiring more front-line staff and expanding digital capabilities, its costs climbed 6pc to $17.5bn.

"We are taking firm steps to deliver the strategy we outlined in June. We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns," John Flint, HSBC's CEO, said. Flint set out in June a three-year plan to invest $15bn-$17bn in areas such as technology and in China.

HSBC's retail banking and wealth management, and commercial banking divisions performed most strongly in the first half, Flint said, adding both continued to gain from a positive interest rate environment.

Pre-tax profits for the period from Asia jumped 23pc to $9.4bn, representing 88pc of group pre-tax profits. Flint re-emphasised Asia as one of the bank's strategic targets in his June presentation.

The bank has not seen any impact yet either on its own performance or that of its customers from rising US-China trade tensions, Flint said, but added: "I'd be concerned the general rhetoric has a bad impact on investor sentiment and investors go risk-off."

The bank's pre-tax profit of $5.96bn in the April-June quarter was higher than the $5.79bn average of analysts' forecasts.

First-half reported revenues rose 4.2pc to $27.3bn.

HSBC shares in Hong Kong partially erased their gains after the results to be up 0.7pc, in line with the broader market. HSBC said it has set aside $765m to resolve a civil claim by the US Justice Department over allegations the bank missold toxic mortgage-backed securities in the run-up to the 2007-8 financial crisis.

The settlement wiped out almost all of the bank's profits for the first half of the year in North America, where it is trying to turn around a US business that has for years underperformed.

Part of that plan includes a push into the US credit card and personal loans market, where it faces a battle against heavily entrenched domestic competition. Flint told Reuters it is too soon to see any results from that new strategy. (Reuters)

Irish Independent

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