HSBC bullish on China business

PUBLISHED : Tuesday, 31 July, 2012, 12:00am
UPDATED : Tuesday, 31 July, 2012, 12:00am


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HSBC, Europe's biggest bank by assets, says it remains 'confident' about its growth in China as the outlook in Europe and other Western economies is expected to stay 'subdued'.

The bank, which yesterday reported a 11 per cent gain in first-half pre-tax profit, said demand from fast-developing markets including Hong Kong and mainland China would drive its revenue growth.

HSBC remained 'confident of a 'soft landing' in China', where growth was likely to reach or exceed 8 per cent this year, thanks to the mainland authorities' readiness to implement measures including cutting interest rates to stimulate the economy, chief executive Stuart Gulliver said.

Profit before tax stood at US$12.7 billion, which was US$1.3 billion higher than that in the first half of last year. The increase was mainly due to asset sales, it said.

Institutional investors in a Bloomberg survey had expected HSBC to post first-half profit before tax of US$10.9 billion to US$14.2 billion.

Net income fell 8.4 per cent to US$8.4 billion in the six months to June 30 from the same period last year. The company said its capital strength had been bolstered, with the core tier 1 ratio - the ratio of a bank's core equity capital to its total risk-weighted assets - rising to 11.3 per cent from 10.1 per cent at the start of the year and 10.8 per cent a year ago.

HSBC posted a pre-tax loss of US$667 million in Europe, compared with a US$2.15 billion profit in the year-earlier period. Gulliver forecast the euro zone's economy was likely to contract this year.

In the US, HSBC expected sub-par growth this year and the next, the bank said.

As HSBC's European businesses faltered, the 'emerging markets will grow at a reasonable pace', Gulliver said. In Hong Kong, pre-tax profit in the first half was US$3.8 billion compared with US$3.1 billion a year earlier. Underlying revenues rose 13 per cent in Hong Kong and in the rest of the Asia-Pacific, and 8 per cent in Latin America. The bank recorded double-digit revenue growth in some markets, including mainland China, India, Brazil and Argentina.

Its fortunes on the mainland will depend on Beijing's ability to maintain steady economic growth as a rapid downturn may hinder its expansion. HSBC is one of the major international banks with a strong mainland presence. But, a PricewaterhouseCoopers report shows the total mainland market share of foreign banks is under 2 per cent.

Recently, HSBC apologised for its mistakes in relation to anti-money laundering controls and pledged to restructure and simplify the businesses further. The bank is facing a possible US fine for lax controls in checking money laundering.

Regulatory and compliance issues overshadowed the bank's financial performance and added to 'public concern and distrust' of the banking industry, group chairman Douglas Flint said.

'It is ... extremely frustrating and infuriating when we discover areas where the behaviour of HSBC has fallen short of the standards we expect,' he said.

Three of Britain's biggest lenders - HSBC, Royal Bank of Scotland and Lloyds - are among 17 banks and one broker under investigation over a Libor rate-fixing scandal. The scandal, some analysts say, has become the latest major concern for investors trading European banking stocks, in addition to other euro-zone risks.

In Hong Kong, HSBC shares rose 1.71 per cent to HK$65.25 yesterday.


HSBC's first-half pre-tax profit in Hong Kong, in US dollars, compared with US$3.1 billion a year earlier