Pretax profit rose to $4.61 billion from $4.53 billion in the year-earlier period, the London-based lender said in a statement today. That compares with the $5.47 billion average estimate of seven analysts compiled by Bloomberg. The bank made a $378 million provision toward a settlement of the currency benchmark-rigging investigation and set aside an additional $701 million to redress customers in Britain.
“Regulatory cost inflation continues to be a headwind,” said Chirantan Barua, a London-based banking analyst at Sanford C. Bernstein Ltd., who has an outperform rating on the
stock. The provision was still “much lower than peers.”
Chief Executive Officer Stuart Gulliver has exited at least 68 businesses since taking over in 2011, as he shifts investment to the bank’s most profitable markets amid increased regulation and compliance costs in Europe and the U.S. The lender, which gets most of its revenue from Asia, has now has provisioned $1.97 billion this year for customer compensation, litigation and other charges, overshadowing gains in profit at Europe’s biggest bank by market value.
HSBC Holdings Plc Chief Executive Officer Stuart Gulliver has exited at least 68... Read More
HSBC brings to $2.4 billion the total banks have set aside to settle allegations traders shared information about their positions and client orders to rig the $5.3 trillion-a-day foreign-exchange market. Last week, Royal Bank of Scotland Group Plc set aside 400 million pounds ($639 million) for the foreign-exchange probe, Barclays Plc (BARC) 500 million pounds, and Citigroup Inc. took a $600 million charge.
‘Significant’ Penalty
“Discussions are ongoing with the U.K. Financial Conduct Authority regarding a proposed resolution of their foreign-exchange investigation,” the bank said in the statement. “The resolution is likely to involve the payment of a significant financial penalty.”Provisions for mis-selling payment protection insurance accounted for $589 million of the U.K. customer redress program this quarter. HSBC took a $550 million charge to resolve accusations of misconduct in its handling of mortgage securities sold to taxpayers before the financial crisis.
Investment Bank
HSBC’s global banking and markets unit, which houses its investment bank, was affected by provisions as third-quarter pretax profit fell 49 percent to $941 million from a year earlier. Revenue at the markets business, which includes credit, foreign exchange, rates and equities trading, increased to $1.87 billion from $1.58 billion in the year-earlier period.“The operating expenses line item in global banking and markets jumped out because of all those regulatory fines and charges,” Sandy Chen, an analyst at Cenkos Securities Ltd. in London, said in an e-mail today. “Although the chunky regulatory charges, and the prospect of more to come, have made a material dent in profitability, we still regard the HSBC franchise overall as resilient.”
Compliance Hires
HSBC added 1,400 compliance staff last quarter, taking the total employed in the area to 6,600 people, Gulliver said on a conference call with reporters today. The bank will employ about 7,000 in such positions by the end of the year.Chairman Douglas Flint has been outspoken about the gamut of new rules from regulators, criticizing them for creating “disproportionate” risk aversion among employees. Flint said in August the bank spends $1 billion more a year on compliance now than it did four year ago.
The bank said it could face a further “significant” fine as it’s been summoned to appear before French magistrates as part of a possible criminal investigation into whether its private bank in Switzerland helped French citizens to evade tax. HSBC has “not yet been charged” CEO Gulliver said today. The investigation relates to data theft at HSBC’s Swiss private bank some years ago, when someone handed data to French government.
HSBC’s best-performing region was Europe, which swung to a pretax profit of $493 million from a $45 million loss in the same period last year. The bank said loan impairment costs decreased by $1 billion in the region, mainly driven by improvements to U.K. commercial banking and an improving economy.
In Asia, the bank’s biggest market, profit fell about 3 percent to $3.5 billion. In the Middle East and North Africa earnings increased 28 percent to $487 million. In North America profit fell 85 percent to $58 million and in Latin America it dropped 56 percent to $96 million.
Capital Level
HSBC’s common equity Tier 1 ratio, a measure of its holdings of the highest-quality form of capital, increased to 11.4 percent from 11.3 percent in the first half. The lender’s estimated leverage ratio, a gauge of equity capital against assets, was 4.6 percent, compared with 4.3 percent in the first half. The Bank of England last week said U.K. banks will have to meet a minimum ratio of 4.05 percent by 2019.“We regard HSBC’s capital position and dividend-paying capacity as strong,” Ian Gordon, an analyst at Investec Plc in London, said in an e-mail.
Standard Chartered, the other U.K. bank that gets most of its profit from emerging markets last week posted a 16 percent drop in third-quarter profit to $1.53 billion. Barclays’s adjusted pretax profit rose about 14 percent to 1.59 billion pounds last week.
(An earlier version of this story corrected billion to million in the eighth paragraph.)
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