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HSBC profits tumble by almost 50% HSBC calls for Theresa May to clarify status of EU nationals
(about 4 hours later)
HSBC’s profits fell almost 50% in the first nine months of the year when Britain’s biggest bank was knocked by losses on the sale of its operations in Brazil. HSBC has called on Theresa May’s government to clarify the position of EU nationals working in the UK because of the uncertainty caused by the Brexit vote.
The $10.6bn of pre-tax profits – compared with $19.7bn a year ago – also included a $500m hit for compensation payments for customers in the UK, largely the result of payment protection insurance misselling. As Britain’s biggest bank reported profits down by almost 50% in the first nine months of the year, its chief executive, Stuart Gulliver, said the prime minister should be given “space” to negotiate the UK’s exit from the EU.
The bank, which has operations in 71 countries and is headquartered in London, had warned that it would take a loss for the sale of its business in Brazil which was part of a strategy by chief executive Stuart Gulliver to cut costs. In July 2015 he announced an overhaul which included 25,000 job cuts around the world – including up to 8,000 in the UK – as he focused the bank towards Asian markets. Of HSBC’s 42,000 workforce in the UK, around 2,000 hail from the EU. Gulliver said: “I would say [what is] slightly more urgent is clarity around the status of EU nationals working the UK.”
At the end of September, the bank employed 234,681 – down 1,378 from December. Ahead of the referendum on 23 June, Gulliver said HSBC could move 1,000 jobs to Paris if Britain voted for Brexit. On Monday, he said the bank – which has decided to keep its headquarters in London rather than move to Hong Kong – was in no rush to start moving staff.
In the third quarter, the $1.7bn loss on the sale of the Brazilian business helped reduced profits to $843m from $6bn in the same period a year ago. “We are in a position where we can sit patiently and see what evolves,” said Gulliver.
The much-anticipated sale of that Brazilian bank allowed HSBC to announce its first share buyback of $2.5bn at the time of the half year results. Analysts are focused on the bank’s ability to pay dividends after it abandoned a pledge to keep incresaing the payouts. A change in the way regulators treat its investment in its Chinese business – Bank of Communications (BoCom) – was regarded as helping its capital position. The bank’s $10.6bn of pre-tax profits – compared with $19.7bn a year ago – were lower because of the loss on the sale of its Brazilian operation and a $500m hit for compensation payments for customers in the UK, largely the result of payment protection insurance (PPI) mis-selling.
HSBC shares were the biggest risers in the FTSE 100 – up almost 5% – despite the slump in profits, largely because of the reassurances Gulliver gave about its ability to keep paying dividends or conducting share buy backs.
David Cumming, head of UK equities at Standard Life Investments, told BBC Radio 4’s Today programme that while the results were better than expected, “the key here is we get some outside blood into the organisation to liven up what is perceived as a relatively slow-moving and bureaucratic culture”.
He added: “They won’t thank me for saying that but I think longer term with HSBC they have become a bit too big, a bit too complex to manage effectively.”
Gulliver said succession planning at the bank would be smooth, a contrast to when he took the top job in 2011 following a bitter boardroom battle.
The bank has already tried to tackle change at the top by announcing that chairman Douglas Flint will depart in 2017. There was no update on a successor who, for the first time in HSBC’s history, will be appointed from outside the management team.
The external appointment was “quite significant”, said Gulliver, whose departure is expected in 2018. Gulliver, though, was careful not to put a date on his departure, saying the appointment of the new chairman would “dictate on what timescale and by whom I’m replaced and what stage I retire”.
Gulliver has embarked on a strategy to clean up the bank following a series of scandals and the revelations last year about how HSBC’s Swiss banking arm helped wealthy customers dodge taxes. It emerged last week that the bank could face trial for alleged tax fraud in France over the activities of its Swiss subsidiary.
The bank, which has operations across 71 countries and employs 240,000 people around the world, had warned ahead of Monday’s results that it would take a loss on the sale of its Brazilian business.
In the third quarter, the $1.7bn loss on the sale of the Brazilian business helped reduce profits to $843m from $6bn in the same period a year ago.
The much-anticipated sale of the Brazilian bank allowed HSBC to announce its first share buyback of $2.5bn at the time of the half-year results. Analysts are focused on the bank’s ability to pay dividends after it abandoned a pledge to keep increasing the payouts. A change in how the Bank of England treats HSBC’s 19% stake in its Chinese business – the Bank of Communications (BoCom) – helped its capital position.
Analysts at Bernstein said: “We feel this should be enough to allow the bank to maintain the dividend next year out of capital even as earnings decline.”Analysts at Bernstein said: “We feel this should be enough to allow the bank to maintain the dividend next year out of capital even as earnings decline.”
Gulliver – who is expected to leave once a replacement is found for chairman Douglas Flint – highlighted the bank’s ability to pay dividends as a result of the rise in its financial strength caused by the change in the regulatory treatment of BoCom. Gulliver said the BoCom stake would not be sold while he was at the helm and that the regulator’s approach to its stake in the Chinese bank would help its ability to pay dividends. The bank plans to pay $0.51 in dividends a year.
“This is another action forming part of our ongoing capital management of the group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buy-backs, as appropriate. It also provides us with a significant capacity to manage the continuing uncertain regulatory environment,”said Gulliver. “This is another action forming part of our ongoing capital management of the group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buy-backs, as appropriate. It also provides us with a significant capacity to manage the continuing uncertain regulatory environment,” said Gulliver.
The bank decided after a 10-month review in February to keep its headquarters in London rather than moving to Hong Kong. But Gulliver said that HSBC could move 1,000 jobs to Paris if Britain voted for Brexit.
Last week it emerged HSBC could face trial for alleged tax fraud in France over the activities of its Swiss subsidiary. The Guardian and other publications exposed the last year how HSBC’s Swiss banking arm helped wealthy customers dodge taxes.
The PPI scandal – where customers were sold insurance they did not need alongisde loans – has already topped £40bn even before the extra provision from HSBC.