HSBC said on November 7 its third quarter adjusted pretax profit rose seven percent from a year ago to USD 5.59 billion, beating expectations. / AFP PHOTO / ANTHONY WALLACE
LONDON, United Kingdom (AFP) – HSBC shares rallied Monday in a positive response to quarterly profits after the British banking giant underwent a radical cost-cutting exercise.
Adjusted pre-tax profit — which strips out one-off items and unfavourable currency movements — rose seven percent in the three months to September to $5.59 billion from a year earlier, beating analysts’ expectations.
Reported pre-tax profit, however, plunged 86 percent from a year earlier to $843 million. That figure included the impact of the sale of the bank’s Brazil business, which set the lender back $1.7 billion.
“Reported profits were down, but adjusted profits were higher than last year’s third quarter in all four global businesses and four out of five regions,” said HSBC chief executive Stuart Gulliver.
He added that earnings “included the impact of the disposal of our operations in Brazil, changes in the fair value of our own debt, and the costs of implementing our cost-reduction programmes”.
The bank posted a net loss of $204 million for the three-month period, reversing a year-earlier net profit of $5.23 billion.
HSBC last year announced a radical overhaul to cut annual costs by $5 billion over two years by shedding 50,000 jobs worldwide, exiting unprofitable businesses and focusing more on Asia.
Gulliver said the bank had achieved $2.8 billion in annualised savings so far and was on track to reach its end-2017 target.
The bank’s balance sheet showed it continued to downsize in the US, selling $900 million worth of consumer and mortgage lending assets.
Like most global banks, HSBC has been struggling to boost profits as China’s economy slows and uncertainty caused by Britain’s looming exit from the European Union casts a shadow over the sector.
On top of that, it has been grappling with stricter capital rules, low interest rates and scandals stemming from its own misbehaviour.
In the latest incident a French prosecutor has called for the bank to stand trial for allegedly enabling French clients to hide more than 1.67 billion euros ($1.84 billion) from the taxman, a source close to the probe said Thursday.
If the case goes to trial, HSBC would face charges that its private banking division offered its customers several ways of hiding assets from the French taxman, notably via the use of offshore tax havens.
But analysts said the bank’s efforts to strengthen its bottom line and its decision to maintain its dividend at $0.10 per ordinary share were welcomed by investors.
‘Shrinking to health’
Gulliver, addressing reporters on a conference call, repeated the bank’s stance that it would need to shift “thousands” of workers into the European Union following Brexit, if Britain leaves the single market.
“Nothing changed in that regard,” he told reporters on Monday, stressing that the bank would need to be covered by the regulatory regime in Brussels.
In early afternoon deals, HSBC’s London share price surged 4.72 percent higher to 622.90 pence, after Hong Kong stock finished 2.96 percent higher at HK$59.15.
“The share price is rising because HSBC may be shrinking its way back to health,” noted Russ Mould, investment director at stockbroker AJ Bell.
He added: “Risks are falling as the balance sheet shrinks and this may be all it takes to underpin the stock.”
The September quarter adjusted profit topped the $5.29 billion average estimate of five analysts surveyed by Bloomberg News.
Adjusted revenue rose two percent to $12.79 billion compared with a year earlier.
Gulliver said the bank was 59 percent of the way through a $2.5 billion share buyback announced in August and would finish late this year or early 2017.