HSBC's Q3 pre-tax profit up 32% on lower fines

LONDON • HSBC reported a better- than-expected 32 per cent rise in pre-tax profit for the third quarter, with a drop in fines for past misconduct countering the impact of a slowdown in Asia and a jump in spending on regulatory compliance.

Costs related to fines and compensation for customers fell by US$1.4 billion (S$1.96 billion) from the third quarter of last year, marking its progress on conduct issues that have marred recent quarterly earnings reports.

Yet the London-based lender continues to grapple with declining revenue and also reported that it spent US$2.2 billion on regulation and compliance in the first nine months of the year, up 33 per cent year on year, even as the British government looks to take a more accommodative stance towards the industry.

Underlying revenue fell 4 per cent to US$15.1 billion compared with the same quarter last year, as plunging stock markets and slowing economic growth hit its business in Asia.

"HSBC management have done a very good job of trying to correct its internal problems, but these results show no bank can improve revenues if the global economy is against it," said analyst Jim Antos at at Mizuho Securities Asia in Hong Kong.

The bank reported a profit of US$6.1 billion for the three months to the end of Sept 30, up from US$4.6 billion. That was more than the consensus estimate of US$5.2 billion, based on an average of analysts' forecasts compiled by the bank.

Adjusted profit for the quarter fell 14 per cent from a year ago to US$5.5 billion, taking into account the lower fines and a gain from the sale of its stake in Industrial Bank.

HSBC's London shares were down 0.6 per cent at 504 pence by 0810 GMT (4.10pm Singapore time), broadly in line with a weaker European bank index. The shares are down 17 per cent this year - hurt by concerns about slowing Asian growth - compared with a 2 per cent rise for the European banking sector.

HSBC said there had been "no visible impact" on credit quality in Asia, with losses from bad loans coming in lower than analysts had expected. The earnings update gave investors a first chance to check on progress on the bank's goals.

Meanwhile, HSBC said it has entered into an agreement to establish a majority-owned securities joint venture in China, taking advantage of more beneficial rules for Hong Kong-funded banks to get more ownership of such a venture than rival foreign banks enjoy in China.

HSBC could own up to 51 per cent of the proposed joint venture with China's Shenzhen Qianhai Financial Holdings, the British lender said in a media release yesterday.

For other foreign banks, foreign ownership of their China securities joint ventures is capped at 49 per cent.

The proposed venture is subject to regulatory review, and it could engage in the full range of investment banking and securities businesses in China. REUTERS

A version of this article appeared in the print edition of The Straits Times on November 03, 2015, with the headline 'HSBC's Q3 pre-tax profit up 32% on lower fines'. Print Edition | Subscribe