Hsbc shares fall on news of soft profit
HSBC's shares fell yesterday as underlying profit was hit by higher costs.
The bank's underlying pre-tax profit fell 6 per cent to US$17.7 billion. But net profit rose nearly 28 per cent to US$16.8 billion in 2011, benefiting from a US$3.9 billion accounting gain on the value of its debt.
The bank's share price in London fell 4 per cent to ?.51 (HK$67.78) in early afternoon trading, the largest intraday drop since November 9.
HSBC chief executive Stuart Gulliver said emerging markets such as Brazil, China and Latin America recorded larger wage inflation.
And despite rigorous cost-cutting efforts, the bank's cost-efficiency ratio rose just 2.3 percentage points to 57.5 per cent.
The bank said this mainly reflected an increase in restructuring costs, wage inflation and payment of US$570 million for the British bank levy, a tax on UK-based banks' balance sheets introduced by the British government last year.
Gulliver said the bank remained focused on achieving a cost-efficiency ratio - a measure of cost to income - of between 48 and 52 per cent.
He said the bank was on track to making savings at the top end of an estimated US$2.5-3.5 billion target range by the end of next year.
Gulliver also said return on equity (ROE) could hit the 12-15 per cent range by 2014, as he promised in May last year.
ROE, which measures a bank's profits against shareholder's capital, rose 1.4 points to 10.9 per cent in 2011.
The bank's core tier one capital, which mainly consists of equity, dropped 40 basis points to 10.1 per cent when compared against risk weighted assets.
This was mainly due to growth in loans, an increase in the risk weighted assets of its mainland business and the introduction of Basel 2.5, international regulations that place tougher requirements on capital.
Loan impairment charges and other credit risk provisions were reduced significantly, notably in North America.
The bank said it had yet to complete transactions to sell its US cards business and retail branches in New York.
Gulliver said the bank's dividend payout ratio reached 42.4 per cent. It will maintain the ratio plan of 40 to 60 per cent.
In terms of post-tax profit allocation, the bank said it planned on keeping 50 per cent for retained earnings and allocating 35 per cent for dividends and 15 per cent for its pay pool.
'We regard these results as reassuring, rather than spectacular,' said Mark Phin, an analyst at Keefe, Bruyette & Woods.
James Antos, a senior analyst at Mizuho Securities, said investors might have bought shares before the results hoping the bank would hit profits out of the ballpark.
'As this did not happen, perhaps this explains in part the sell down,' Antos said.
HSBC said it paid 170 employees more than US$1 million. Two staff received between US$11 million and US$12 million in 2011.
Last May it announced plans to overhaul business and improve efficiency.
Gulliver said in August that the bank would sack about 30,000 people, mainly in back office supporting functions.
But he said the bank would continue to hire at the same time.
Gulliver said the bank wanted to have more staff dealing directly with customers and focusing on revenue and fewer middle-office staff.
The bank's global headcount had dropped by 6,700 to 288,316 by the end of last year.
