LONDON--HSBC Holdings PLC (HBC) said Monday that net profit fell in
the first half, as the bank was forced to put aside millions of
dollars to cover the fallout of a U.S. money-laundering probe and the
misselling of financial products.
A series of provisions at the Asia-focused bank pushed up underlying
costs by $1.9 billion and ate into the lender's bottom line, cutting
net profit in the first six months by 9% to $8.15 billion.
HSBC Chief Executive Stuart Gulliver told a conference call that he
was still confident the bank could hit profitability targets and was
working to put its compliance failings behind it. HSBC announced a
provision of $700 million to cover potential fines following a damning
report by the U.S. Senate alleging that some of HSBC's global
operations were being used by money-launderers and potential terrorist
financiers.
"What happened in Mexico and the U.S. was shameful," Mr. Gulliver
said, adding that the eventual fines could be considerably higher than
the provision. HSBC also said it was putting $1.3 billion aside mainly
to cover the misselling of payment protection insurance to U.K.
customers. The insurance, which covers buyers" mortgage or credit-card
payments if they lost their jobs or became ill, was widely sold by
U.K. banks to people who didn't need it.
Separately, the bank said it was working with regulators in a global
probe into allegations that lenders sought to manipulate the interbank
lending market. Mr. Gulliver said it is too early to predict the
impact of the probe and the bank hadn't suspended or fired any traders
in relations to the investigations.
The series of scandals didn't overshadow the group's financial
results, with shares rising 1.3% by midday as investors cheered the
level of cost reduction at the bank and a solid performance of its
Global Banking and Markets division.
"If you strip out the exceptional items, you have actually got quite a
strong cost story," said Mike Trippitt at Oriel Securities. "But the
strategic targets are quite a challenge."
Last year, Mr. Gulliver outlined a grand plan to turn the lender's
sprawling banking empire into a more nimble entity amid criticism that
it had overextended itself worldwide and wasn't providing adequate
returns to investors. At the time, Gulliver said he wanted the bank to
make a 12%-15% return on equity by 2013 and slice the cost efficiency
ratio to 52%. In the first half of the year, the bank hit a
cost-efficiency ratio of 57.5% and a return on equity of 10.5%.
On Monday, Mr. Gulliver said that he was still confident the bank
could achieve its targets.
To this end, the bank has put an emphasis cutting overheads and
building presence in a few key markets that trade heavily with one
another. It has been steadily selling off 36 businesses in less
lucrative countries since 2011. However, staff costs remain high as
workers in Asia and South America request more competitive wages.
The bank said that total operating income rose to $43.7 billion in the
first six months of the year, from $42.3 billion a year before.
The banks said the tax charge in the first six months of 2012 was $1.9
billion higher than in the year-ago half. HSBC attributed the rise to
the disposal of its Card and Retail Services business and some U.S.
branches, as well as the non-deductible provision in respect to the
U.S. anti-money-laundering probe and other investigations. It also had
a deferred tax benefit in the year-ago half.
The bank said it still faces a battle to win back the trust of
regulators and customers.
"Regulatory and compliance events in the first six months of the year
overshadowed financial performance. And that has added further to
public concern and distrust of the banking industry," HSBC Chairman
Douglas Flint said in a statement.
-Write to Max Colchester at max.colchester@wsj.com
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(END) Dow Jones Newswires
July 30, 2012 05:25 ET (09:25 GMT)
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