Tuesday, 25 September, 2018

HSBC, Europe's largest bank, announces a 4% fall in pre-tax profit

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Elsie Buchanan | 05 May, 2018, 01:36

HSBC's common equity tier 1 ratio - a measure of financial strength - was 14.5 percent at the end of March, flat compared to end-December and higher than 14.3 percent in the first quarter of 2017. Analysts at UBS said they had expected it to buy back twice as many shares.

HSBC shares were down 2.2% in early morning trading.

The bank said it is involved in "active discussions" with the U.S. Justice Department on resolving civil claims and has set aside $897 million in relation to the U.S. probe on its sale of mortgage-backed securities. "Last year the rate of costs growth exceeded revenue growth until the full year, and that is very much the shape of what we expect this year to look like".

It also said a $2 billion share buyback would be the only one this year given the "growth opportunities" it now sees, signaling HSBC plans to reinvest the excess capital it is generating rather than return it to investors.

In 2017, HSBC returned a total of $3 billion to shareholders through share buybacks and paid more in dividends than any other major European or American bank, while maintaining its capital buffers as revenue grew.

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HSBC CEO JOHN FLINT, attributing the rise in costs to investment in its retail banking businesses in its core markets of Britain and China.

The FTSE 100-listed lender's profit fall mainly reflected a13% rise in operating expenses which outpaced reported revenue growth of 6% to US$13.7bn thanks to higher deposit margins and balance growth, notably in Asia.

One of Flint's main concerns will be improving HSBC's return on equity, which came in at 7.5% in the quarter, lower than its target of 10% and below the last-reported levels at its closest western rivals in size, JPMorgan Chase & Co. and BNP Paribas SA. However, achieving a 10% return for 2018 "looks hard", Finance Director Iain Mackay said on a call with reporters. It follows $5.5 billion worth of share repurchases HSBC has carried out in the previous two years.

In the first quarter, adjusted pre-tax profit hit $6.03bn, or 3 per cent lower than the same period previous year, but slightly above analyst expectations of $6bn.

Profit was higher in all divisions except global banking and markets, which Mr Flint said was hit by "weakness in rates and credit" - adding that he was "not concerned about it". Loans grew by $17 billion, or 2 per cent, in the first quarter.

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