May 24, 2017

DealBook: HSBC Profit Surges as Restructuring Plan Gains Traction

A branch of HSBC in London.Andy Rain/European Pressphoto AgencyA branch of HSBC in London.

8:42 a.m. | Updated

LONDON – Job cuts, asset sales and other cost reductions paid off for the British bank HSBC as it posted first-quarter earnings on Tuesday that beat analysts’ expectations.

Earnings at the bank rose almost 50 percent, to $8.43 billion, compared with the $4.32 billion the bank reported in the period a year earlier. Analysts polled by Thomson Reuters had expected a pretax profit of $8.1 billion.

“We’re moving into calmer waters but there are still challenges ahead,” HSBC’s chief executive, Stuart T. Gulliver, said during a conference call with reporters.

Like other banks, HSBC has embarked on a far-reaching cost-reduction program. Mr. Gulliver said that cost-cutting would remain on the top of the agenda this year, as the bank aimed to find an additional $1 billion in annual savings.

Operating expenses fell 11 percent, to $9.3 billion, from $10.4 billion in the first quarter of 2012, HSBC said in a statement. HSBC plans to update investors next week about its strategy and the progress it has made with its cost-reduction program.

Mike Jennings, chief investment officer of Premier, an investment firm in Britain, described the earnings as “good,” adding that the bank’s efforts to reduce costs had been better than expected. “They should be able to maintain a good rate of growth compared to competitors,” said Mr. Jennings, who holds HSBC stock as part of his portfolio.

Since it began a revamp in 2011, the bank has reduced costs by $4 billion, sold its unit in Panama to Bancolombia for $2.1 billion and its stake in the Chinese insurer Ping An for $9.4 billion. Last month, HSBC said it would eliminate about 1,150 jobs at branches in Britain, adding to the reduction of 30,000 positions two years ago.

A decline in bad debts also helped results. The bank had to set aside $1.2 billion for bad loans and other credit risks in the first quarter, half the $2.4 billion it did in the period a year earlier. The overall quality of the loans improved, especially in the United States and Europe, HSBC said.

Mr. Gulliver said on Tuesday that he could not rule out additional job cuts, as the economies in Britain and the rest of Europe continued to struggle. After a slower-than-anticipated start to the year, Mr. Gulliver said he expected economic growth in mainland China to gather speed in 2013.

HSBC’s first-quarter earnings were helped by its business in Asia, where it generates more than half of its profit. It also recorded better performance in Europe, swinging to a profit after posting a loss in the first quarter of last year. Going forward, however, Mr. Gulliver said he expected the euro zone would contract but that the United States economy would “continue to outperform its peers.”

Shares of HSBC rose 2.9 percent in London on Tuesday. The shares have gained 13 percent this year, less than shares in Barclays but more than those of Standard Chartered, which also generates most of its profit outside of Europe.

HSBC is recovering from a set of blunders that have weighed on its earnings and reputation. Last year, it agreed to pay a $1.92 billion fine to settle charges by American authorities that the bank broke money laundering rules. The case included charges that HSBC handled money transfers worth billions of dollars for countries under United States sanctions.

The bank has also set aside more than $2 billion to compensate customers who were improperly sold some financial products.

Article source: http://dealbook.nytimes.com/2013/05/07/hsbc-profit-surges-on-restructuring-plan/?partner=rss&emc=rss

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