Sunday 19 January 2020

HSBC's profits soar as strategy of slash-and-burn pays dividends

Earnings nearly double as bank halves bad debt and vows to keep pressure on costs

Steve Slater

HSBC aims to keep the pressure on costs after first-quarter earnings nearly doubled due to the bank's three-year efficiency drive and a halving in bad debts charges.

The jump in profits reinforces HSBC's position as one of the strongest global banks after the financial crisis, partly as a result of a radical overhaul to simplify its sprawling structure and improve profitability.

Its strong focus on Asia, which generated around two-thirds of profit in the first quarter, has also helped offset a harsh business environment, particularly in the eurozone.

Europe's largest bank moved faster and more aggressively than many of its peers to cut costs after the crisis.

And it will continue to wield the knife – with a further 6,000 job cuts expected this year from businesses already put up for sale, on top of 40,000 already culled.

HSBC has closed or sold more than 50 businesses since 2011.

"We're moving into calmer waters but there are still challenges ahead," Chief Executive Stuart Gulliver told reporters on a conference call.

Gulliver declined to say whether he would announce any additional cost savings at a strategy update for investors on May 15.

Cost base

But he said: "Clearly you can expect us to continue to focus on our cost base."

The chief executive said HSBC still expected the eurozone economy to contract during 2013 and that UK economic growth remained muted.

Across Europe, HSBC's smaller rivals are playing catch-up with cost cuts to help offset rising bad debts and weak loan demand. French banks Societe Generale and Credit Agricole yesterday said they would keep making cuts to cope with a weak domestic economy.

In Germany, thousands of job cuts contributed to a net first-quarter loss at Commerzbank, which warned that earnings would be under pressure this year as loan-loss provisions rise.

In contrast, HSBC posted a pretax profit of $8.4bn, up from $4.3bn a year ago and above the average forecast of $8.1bn from analysts polled by the company.

"We see these results as an endorsement of the strength of the franchise and its ability to generate earnings even in a sluggish macro environment," said Chirantan Barua, analyst at Bernstein. He said HSBC's strong capital position and capital generation meant it could increase its dividend by at least 30pc this year.

Irish Independent

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