HSBC disappoints as profits fall short

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

RELATED TOPICS

• HSBC Group

(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

Apple is world's most valuable brand

Apple CEO Steve Jobs with the iPhone, which has helped propel the company past Google as the world's most valuable brand.

STORY HIGHLIGHTS

• Apple has overtaken Google to become the world's most valuable brand
• Apple now valued at $153bn, according to new rankings published on Monday

RELATED TOPICS

• Apple Inc.
• Google Inc.

(FT) -- Apple has overtaken Google to become the world's most valuable brand with an estimated brand value of more than $153bn, according to new rankings published on Monday.

For the last four years, Google has dominated the BrandZ Top100 ranking of the most valuable global brands, compiled by Millward Brown, a subsidiary of advertising company WPP. The ranking covers everything from cars to clothing and banks to telecoms providers.

Thanks to the success of the iPad tablet and iPhone mobile -- among both consumers and corporations -- Apple's brand value has surged in the last year to overtake that of the search engine company.

Apple has increased its brand value by $137bn, or 859 per cent, since 2006 when the BrandZ rankings were launched. The brand valuation compares with Apple's stock market capitalisation of $319.4bn, which is almost five times higher than in 2006. Google's market capitalisation is $172.4bn.

The BrandZ index calculates brand value on a number of factors, including an estimate of the brand's contribution to earnings, valuation of intangible assets, measures of customer perception and an estimate of growth potential.

Peter Walshe, global BrandZ director at Millward Brown, said Apple's success reflected the fact that its products were not only highly desired by consumers but also seen by companies as useful.

"The anecdotal evidence is that if employees are given the choice of two similar jobs they opt for the one with better technology for its employees -- for example an iPad," Mr Walshe said. Apple, he added, had also succeeded in emulating luxury goods brands, in that making its products more expensive had increased their desirability.

The brand rankings are dominated by technology companies, with six out of the top 10 places occupied by Apple, Google, IBM, Microsoft, AT&T and China Mobile.

Source : http://edition.cnn.com

Microsoft in talks to buy Skype

Sources say Microsoft is in advanced talks to purchase Skype, the internet telephone company.

STORY HIGHLIGHTS

• Microsoft is in advanced discussions to buy Skype, the internet telephone company
• Would be one of Microsoft's largest deals as it seeks to revitalise its business

RELATED TOPICS

• Skype Ltd.
• Microsoft Corporation

(FT) -- Microsoft is in advanced discussions about purchasing Skype, the internet telephone company, a person close to the company said, in what would be one of the technology company's largest deals as it seeks to revitalise its business.

A deal between the two companies could be announced as early as Tuesday, according to the person familiar with the talks. While details were still hammered out on Monday night -- which could yet derail an announcement -- the person added that the deal could value Skype at about $8.5bn, including debt.

The deal would mark Microsoft's most aggressive move online so far, as the Seattle-based company seeks to respond to strategic challenges and shift away from its core Windows business into other areas, including the internet, communications and entertainment.

Microsoft's last substantial deal was the purchase of online advertising company Aquantive in 2007 for just over $6bn.

Microsoft declined to comment on the negotiations with Skype. But the internet telephone company, which is owned by a group of private investors led by Silver Lake Partners, could not be reached for comment on the deal, which was reported by the blog GigaOm and the Wall Street Journal.

A deal, if made for cash, would make little dent in Microsoft's cash reserves. The software company had cash and short-term investments of $50.2bn at the end of March, up from $13.4bn the year before.

However, the value put on Skype by the potential acquisition represents a big premium to what Wall Street had been expecting in an initial public offering.

The internet calling service reported a loss of $7m for 2010 on revenues of $860m. It has struggled to find add-ons for its free voice and video services that add revenue.

Skype boasts about 145m people who use its services each month, although less than 10m pay anything at all -- usually to make, or receive, phone calls on regular telephones rather than through a computer. Its average number of monthly users rose by nearly 40 per cent last year.

At $8.5bn, a deal would value Skype at about 32 times its adjusted earnings before interest, tax, depreciation and amortisation -- the measure by which analysts assess its performance.

The company last summer filed for an initial public offering through a Nasdaq listing. However, since then, takeover speculation has swirled around Skype, with Google and Facebook mentioned as possible suitors.

Microsoft may tread carefully in picking up Skype. Ebay purchased the company in 2005, but failed to deliver on its promise of profitably bringing together internet communication with online shopping. The company eventually wrote down its investment in Skype, selling the business to a group of private investors.

Source : http://edition.cnn.com