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Mon 27 Feb 2012 08:03 PM

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HSBC sees MidEast growth as it posts $22bn profit

International bank says growth in MidEast, Asia, Latin America will offset sluggish Europe

HSBC sees MidEast growth as it posts $22bn profit

HSBC Holdings Plc said a $1bn increase in its wages bill in Brazil, China and other emerging markets was the price of avoiding the stagnant growth which has dogged some rival lenders more dependent on Europe.

Posting a pretax profit just shy of $22bn, the largest in 2011 by a western bank, HSBC said on Monday it was confident growth in Asia, Latin America and the Middle East would continue to offset sluggish conditions in Europe.

However, with costs rising 10 percent in 2011, due partly to surging wages in emerging markets, Chief Executive Stuart Gulliver told reporters it would be a challenge to meet the bank's 2013 target for reducing costs as a proportion of income.

Banks across Europe have been posting hefty losses as the euro zone sovereign debt crisis has hit their trading profits, and as they strive to meet tough new rules aimed at preventing a repeat of the 2007-09 banking crisis.

HSBC, Europe's biggest bank and which makes over three quarters of its profits outside Europe and north America, has been relatively unscathed thanks to its strength in faster-growing emerging markets.

It said it expected that trend to continue, despite fears some of these economies were overheating and could see an abrupt slowdown.

"We remain comfortable with the (outlook in) emerging markets and are confident that GDP growth in emerging markets will be positive and China will have a soft landing," Gulliver said.

In contrast, the euro zone economy would flatline this year, with "marked recessions" in some southern countries, he added.

HSBC, with 89 million customers in 85 countries, said pretax profit rose 15 percent to $21.9bn in 2011 compared with a forecast for $22.2bn in a Reuters poll.

The figure fell short of the group's record profit of $24.2bn in 2007, but beat all other western banks that have reported so far for last year, including US rival JP Morgan, which made $19bn.

The world's most profitable banks in recent years have been Chinese groups ICBC, which made a 215 billion yuan ($34.2bn) pretax profit in 2010, and China Construction Bank, which made 175 billion yuan ($27.8bn).

HSBC's profit was boosted by a $3.9bn accounting gain on the value of its debt. Stripping that out, underlying pretax profit fell 6 percent to $17.7bn.

"There's a slight miss (on profits) and the market isn't that impressed with the message on costs," said Alex Potter, analyst at Berenberg Bank.

HSBC said it paid out $4.2bn in bonuses, down 2 percent on 2010. Banks are coming under intense pressure from politicians and the public to rein in pay awards because of the role of the sector in the world's economic problems.

Gulliver was paid 8 million pounds ($12.7m) last year - including a 2.2 million bonus - down from 8.4 million in 2010, when he ran HSBC's investment bank. Another banker, whom HSBC declined to name, netted 7 million pounds, while 192 employees were paid over 1 million pounds each, including 64 in Britain.

Gulliver said HSBC would continue to pay competitively, particularly in emerging markets, as the growth being delivered made the investment worthwhile.

"Wage price inflation and competition for staff is very high. We are not the only people to work out that the emerging markets have high GDP growth and there's a limited pool of talent," he said on a conference call.

While HSBC remained on track to hit its return on equity target of 12 to 15 percent by the end of 2013, it would be a "challenge" to achieve its cost-to-income goal of 48 to 52 percent by then, Gulliver said, adding this was mainly due to a difficult macro-economic backdrop.

The cost-to-income ratio deteriorated to 61 percent in 2011 from 55.6 percent the year before for its underlying business.

Gulliver said HSBC would offset some of the pressure by redoubling its cost-cutting efforts elsewhere in the business and said it was confident of hitting the upper end of its $2.5-$3.5bn annual cost-savings range.

In the last year HSBC has cut 11,000 jobs and sold 19 businesses as part of Gulliver's business plan. Deals already struck will cut $50 billion in risk-weighted assets from its balance sheet.

"This is a redesigning of the group, not a shrinkage. It's to get ourselves on the front foot," Gulliver said.

HSBC, which lifted its 2011 dividend by 14 percent to 41 cents a share, said profit at its investment bank fell 24 percent to $7bn as the euro zone debt crisis slowed capital markets activity in the second half of the year.

Loan impairment charges and other credit risk-related provisions, however, fell $1.9bn to $12.1bn.

HSBC's star division was commercial banking, where profits jumped 31 percent to $7.9bn. In a throwback to its roots as a bank specialising in trade finance, last year's growth was led by increased business in Brazil, Hong Kong, China, Mexico, Argentina and Singapore.

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Suleyman 7 years ago

You can bet they'll not spend one cent of those billions of profit on improving their appalling customer service.

mike ali 7 years ago

it is really like a joke, on one side HSBC terminating hundreds of people on cost cutting while here this articel show how this bank getting more profit? can any one share with me how this and what exactly hsbc trying to show .