HSBC posts Q4 pre-tax loss on revenue drop, fair value losses

Company logos of HSBC are displayed at the entrance and inside one of its branches in Hong Kong, China.
Company logos of HSBC are displayed at the entrance and inside one of its branches in Hong Kong, China. PHOTO: REUTERS

HONG KONG (REUTERS, BLOOMBERG) - HSBC said it saw a 'bumpier' financial environment ahead after delivering flat 2015 profit growth against a bleak backdrop of slowing growth in China and tumbling commodities prices.

For the full-year, HSBC reported profit before tax of US$18.87 billion (S$26.46 billion) for 2015 against US$18.7 billion the year before, below the average analysts' estimate of US$21.8 billion, according to Thomson Reuters data.

For the fourth quarter, Europe's largest bank posted a fourth-quarter loss as revenue slumped and it booked fair-value losses on its own debt.

The pre-tax loss of US$858 million compared with a profit of US$1.73 billion a year earlier, HSBC said in a statement on Monday (Feb 22). Analysts surveyed by Bloomberg on average forecast a US$1.95 billion profit for the quarter. Operating costs in the period amounted to US$11.5 billion and the bank declared a dividend of 21 US cents for the quarter.

HSBC chief executive officer Stuart Gulliver, 56, has been accelerating plans to scale back the lender's vast global footprint, seeking to boost profitability and reverse a share slump this year. In June, the CEO unveiled a new strategy to boost investment in Asia, exit unprofitable countries and cut as many as 25,000 jobs to help save as much as US$5 billion by the end of 2017.

Adjusted pre-tax profit fell to US$1.9 billion in the fourth quarter from US$2.9 billion a year earlier. Its investment bank had a US$1 billion profit in the period, compared with a year- earlier loss of US$85 million. Impairments on bad loans increased by 32 per cent to US$1.64 billion.

HSBC plans to cut risk-weighted assets by about US$290 billion, about a quarter of the bank's total, while redeploying around US$100 billion to US$150 billion of risk-weighted assets in Asia. The bank is targeting a return on equity of more than 10 per cent by 2017.

Earlier this month, the board decided to keep the bank's headquarters in London, favouring the British capital over its ancestral home of Hong Kong, after obtaining concessions from the UK government on regulation and taxes.

In its earnings statement, the bank said it was going to stick to delivering on a June strategic plan centred around further expanding into China.

But it added that the economic slowdown there was making the environment more challenging. "China's slower economic growth will undoubtedly contribute to a bumpier financial environment, but it is still expected to be the largest contributor to global growth as its economy transitions to higher added value manufacturing and services and becomes more consumer driven," HSBC chairman Douglas Flint said.

Last year, Asia represented 83.5 per cent of global pre-tax profit for HSBC, a larger portion than a year earlier and a sign that the bank's future growth is tied to the region's.

HSBC proposed to hike its dividend to US$0.51 per ordinary share against US$0.50 a year earlier.

This is a relief to investors who had worried the lender's more constrained capital position would cause management to abandon the goal of progressive dividend growth.