HSBC's pre-tax profit plunges 62% on write-downs

Like most global banks, HSBC has been struggling to lift profits as uncertainty caused by Britain's looming EU exit casts a shadow over the sector.
Like most global banks, HSBC has been struggling to lift profits as uncertainty caused by Britain's looming EU exit casts a shadow over the sector.PHOTO: BLOOMBERG

Lender cites geopolitical changes leading to volatile conditions

HONG KONG/LONDON • HSBC Holdings yesterday reported a 62 per cent slump in annual pre-tax profit that fell way short of analysts' estimates as the British bank took hefty write-downs from its restructuring, sending its Hong Kong shares down 3.5 per cent.

Europe's biggest bank by assets posted a 2016 profit before tax of US$7.1 billion (S$10 billion) against US$18.87 billion the year before.

It also announced a new US$1 billion share buyback.

The net profit was US$2.48 billion compared with US$13.52 billion recorded in 2015, with group chairman Douglas Flint saying geopolitical changes contributed to "volatile financial market conditions".

On the impact of Brexit, he reaffirmed reports that "current contingency planning suggests we may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop".

Like most global banks, HSBC has been struggling to boost profits as uncertainty caused by Britain's looming exit from the European Union casts a shadow over the sector.

  • US$7.1b

    HSBC Holdings' 2016 profit before tax, compared to US$18.87 billion for the previous year.

HSBC in 2015 announced a radical overhaul to cut annual costs by US$5 billion over two years by shedding 50,000 jobs worldwide, exiting unprofitable businesses and focusing more on Asia.

On top of that, it has been grappling with stricter capital rules, low interest rates and scandals stemming from its own misbehaviour.

The 2016 profit reflected a US$3.2 billion impairment of goodwill in its global private banking business in Europe and the impact of its sale of operations in Brazil, the bank said in a statement yesterday. Chief executive officer Stuart Gulliver said: "What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us."

The US$1 billion share buy-back takes HSBC's announced buy-backs since the second half of 2016 to US$3.5 billion, following the disposal of its Brazil unit in July last year in a US$5.2 billion deal.

HSBC's stock drop in Hong Kong yesterday was its biggest single intra-day share price fall since June 24, which was a reaction to Britain's vote to leave the EU. But since then, it has been among the best-performing European bank stocks, climbing 53 per cent in London against a 28 per cent increase in the STOXX Europe index of 600 banks.

Mr Gulliver said the bank had seen little impact from the referendum outcome on its business but it is still on track to relocate 1,000 of its 43,000 United Kingdom-based staff to Paris once Britain leaves the EU.

Mr Flint and Mr Gulliver have toiled since taking over HSBC in 2010 to shrink it, exiting more than 80 businesses and shedding over 43,000 jobs as the post-2008 financial crisis environment proved harsh for global mega banks.

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on February 22, 2017, with the headline 'HSBC's pre-tax profit plunges 62% on write-downs'. Print Edition | Subscribe