HSBC sees profits jump to £3.1bn

HSBC has reported a 10 per cent rise in third quarter profits, helped by tighter cost control and fewer losses from bad loans, and confirmed it was being investigated as part of a global probe into currency market trading manipulation.

Europe’s largest bank said underlying pre-tax profit was £3.1bn for the three months to September 30 – up 30 per cent on a statutory basis – with strong Hong Kong and British markets together accounting for more than half of earnings and offsetting 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 eurozone.

Hide Ad
Hide Ad

“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.

HSBC said it was cooperating with the Financial Conduct Authority, which is leading an investigation into the $5.3-trillion-a-day foreign exchange market that has spread to include regulators in the United States, 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 instill a more responsible corporate culture after it was fined a record $1.9bn last year for lax anti-money laundering compliance, said it had not suspended or fired any staff, after being contacted in October.

Hide Ad
Hide Ad

“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,” Mr Gulliver said.

HSBC warned of more regulatory uncertainty and set aside more money for potential settlements or compensation.

It made an extra provision in its private bank to cover a US investigation into US citizens with bank accounts in Switzerland. Mr Gulliver said agreements with other banks had set a precedent on the scale of settlement, so HSBC topped up a provision made in August. It declined to specify how much it had set aside.

HSBC took another $428m charge last quarter to cover costs of compensation in Britain – broadly split between expected redress for insurance mis-selling, mis-sold interest rate hedging products, and for UK wealth management customers.

Hide Ad
Hide Ad

The latter relates to how products were sold in the past to wealthy customers and follows a critical review by the City watchdog last year. Most of the $149m put aside for that will cover the cost of a review into past practice that begins next year.

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

HSBC shares rose 2.8 per cent to an eight-week high during trading, helping keep the European banking index in positive territory after a call for higher capital requirements by the Swiss finance minister hit UBS and Credit Suisse.

“We feel some of the biggest news is the outlook statement. HSBC is traditionally the most dour of all the banks and here they allude to ‘reasons for optimism’, ‘a broadening recovery’ and even state ‘China is stabilising’. This is very strong from HSBC,” said Alex Potter, analyst at Mirabaud Securities.

Hide Ad
Hide Ad

The rise in HSBC’s profits, in line with analysts’ forecasts, was underpinned by a 4 per cent dip in losses from bad loans and a $700m 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.

Mr Gulliver said he had pushed through $4.5bn of annualised cost savings since 2011, allowing HSBC to absorb significantly higher compliance costs, with more than 2,800 compliance staff added.

HSBC said its capital position improved and its common equity Tier one ratio, a key measure of financial strength, was 10.6 per cent under tough new rules. But it said the regulatory landscape was uncertain.

Plans by Britain’s financial watchdog are still under consultation, but could require banks to hold core capital of 12 per cent or more, analysts said.