HSBC revenues were down 5% at $24.5 billion, but chief executive says lending volumes have increased by $39 billion.
STORY HIGHLIGHTS
- 10% fall in underlying pre-tax profits in the three months to end of March to $5.5B
- Bank reveals $400M impairment charge in U.S., $78M charge to fund US software problems
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(FT) -- HSBC disappointed the markets on Monday with profits that fell short of expectations, as the bank reported a further hiccup in its troubled US consumer business.
Stuart Gulliver, chief executive, said overall profits overall had "held up extremely well" with "reasonably strong numbers". An acceleration in restructuring in some of its troubled operations was largely responsible for a 10 per cent fall in underlying pre-tax profits in the three months to end-March to $5.5bn, he said
But Mr Gulliver revealed a fresh $400m impairment charge in the US, as house prices there failed to recover as expected, and instead either stagnated or in some areas slipped further. There was also a $78m charge to fund US software problems.
The numbers were the first for which Mr Gulliver was responsible, after taking over as chief executive at the start of the year. He is on Wednesday due to present details of a strategic review of HSBC's global operations, which is expected to involve an overhaul of its US business, with the sale of certain units.
As part of the broader restructuring effort, the bank took a $68m charge relating to its Latin American operations in the first quarter.
Analysts have been particularly concerned about rising costs across the group. Mr Gulliver said the cost-income ratio had jumped in the first quarter to 61 per cent, from 55 per cent at the end of last year, although without one-off charges the number was flat.
Included in those one-offs was a $440m charge relating to mis-sold personal protection insurance, as Britain's banking sector opted not to appeal against a recent court ruling. The figure, which followed a £3.2bn charge taken by Lloyds last Thursday, was much lower than some analysts had expected but Mr Gulliver said the provision was a "reasonable stab" at what the affair would cost it.
"We stopped writing this stuff at the beginning of 2007," he said, while some competitors had continued selling PPI policies until last year.
Mr Gulliver said lending volumes had increased by $39bn, with much of that growth directed at Asia. However, he played down concerns about a credit bubble in Hong Kong and China. "Nothing gives me cause for concern that we're writing business into a bubble," he said.
Revenues were down 5 per cent at €17bn, but loan impairments plunged by 37 per cent to $2.4bn, the lowest since early 2006. Mr Gulliver was particularly pleased with growth in the equities unit of the investment bank, although overall investment banking revenues were down. Mr Gulliver was the former head of the investment bank.
Headline pre-tax profits for the quarter, which included the impact of revaluing the bank's own debt, were $4.9bn, down 14 per cent.
Mr Gulliver warned that it would be two or three years before the bank's cost-income ratio would reach the targeted 48-52 per cent range, and return on equity would rise to his goal of 12-15 per cent. He said he hoped this year's ROE would be better than last year's 9.5 per cent. In the first quarter of the year, the low effective tax rate inflated the number to 11.4 per cent.
HSBC's tax rate for the quarter fell to an exceptionally low 10 per cent, compared with a normal annual level of 19-22 per cent, thanks to one-off tax credits in the US. The bank took a $600m charge towards the UK balance sheet levy. HSBC has long been peeved that the tax applies to its global business, not just UK operations, and Mr Gulliver said two-thirds of the charge related to non-UK business.
The bank is due this year to conduct a scheduled triennial review of its domicile. But Mr Gulliver said that would not take place until the fourth quarter of the year, by which time the final report from the Independent Commission on Banking, appointed by the UK government, should be published. The ICB has recommended that banks' UK retail banking operations should be ringfenced to protect British taxpayers.
Shares in HSBC fell 1.5 per cent in early London trading to 642p.
Source : http://edition.cnn.com
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