Emerging markets power HSBC's income

Bank chief points to a pick up in last months of 2012 and trade demand propelling Asia's large share of the global lender's loan growth

PUBLISHED : Tuesday, 05 March, 2013, 12:00am
UPDATED : Tuesday, 05 March, 2013, 5:21am

Emerging markets contributed 85 per cent of the income of global banking group HSBC, chief executive Stuart Gulliver said yesterday.

Gulliver said half of the group's loan growth came from Hong Kong, mainland China, and the rest of Asia, driven by trade demand. Hong Kong and Latin America had the best performances in retail banking and wealth management.

"The final months of the year saw an improvement in growth and sentiment, with Asian economies picking up, and worries over the euro zone moderating," Gulliver said. The picture for Asia in 2013 was brighter than last year, he added, with mainland China's gross domestic product expected to return to 8.6 per cent.

The lender's US$4.4 billion profit before tax for the fourth quarter was 25.7 per cent higher than the previous quarter.

Its underlying profit before tax rose 18 per cent to US$16.4 billion for the full year. Pre-tax profit was down 6 per cent to US$20.6 billion on a reported basis, mainly because of a US$5.2 billion fair-value loss on its debt.

The bank also paid a US$1.9 billion fine to United States regulatory authorities to settle a US investigation into money laundering, and made an additional provision of US$1.4 billion for British customer redresses last year.

The bank made 26 disposals and closures last year, and four this year, making a total of 47 exits from non-strategic markets and businesses since 2011. It recorded US$2 billion in cost savings, for total annualised savings of US$3.6 billion, beating a target of US$2.5 billion to US$3.5 billion of sustainable savings since 2011.

The bank's accounting return on equity was just 8.4 per cent, down from 10.9 per cent in 2011, and well short of its target of 12-15 per cent by the end of the year.

Finance director Iain Mackay said the decline was driven by adverse fair-value movements on its own debt, a higher tax charge, and a much stronger equity base.

Its cost-income ratio worsened to 62.8 per cent from 57.5 per cent in the same period last year. Gulliver said this was outside the target range due to the British customer redress provisions and related costs of settling the investigations. "When we set the target at 2011, we had no vision on the poor situation in the euro zone, and underestimated the amount of personal protection insurance redress," he said.

Its core tier-1 capital ratio grew to 12.3 per cent in December, up from 10.1 per cent last year. The group estimated that when the Basel III conditions were met, its common equity tier-1 ratio would be 10.3 per cent, up from 9 per cent last year.

The Hongkong and Shanghai Banking Corporation Ltd, the group's subsidiary in Asia, reported a 19 per cent rise in pre-tax profit to HK$108.7 billion. Attributable profit was up 23 per cent to HK$83 billion.

Profits in Hong Kong grew by 31 per cent, thanks to improved deposit spreads, growth in loans and deposit balances, and higher trading revenues, together with a cut in loan impairment charges.

Profits in the rest of the Asia-Pacific were ahead by 8 per cent, including gains on the sale of businesses, increased lending, and higher profits from associates in mainland China.