HSBC's shares received a battering on new chief executive Stuart Gulliver's first annual results announcement, as the bank admitted shareholders returns would fall as it meets the cost of strict new regulations.
The bank said it would crimp its long-held return on equity targets to cater for the 'Basel 3' rules, which from 2013 will force banks to set more capital aside for future crises.
HSBC also revealed its costs had ballooned partly because it is increasing staff wages in Asia, and that it could take a significant hit this year from a new tax the British government plans to levy on bank bonuses.
The shares had plunged 5 per cent to 674.2 pence by mid-afternoon in trading in London.
HSBC earned money in all its major markets last year and pre-tax profit more than doubled to US$19 billion, largely because bad loan charges in its troubled North American subprime lending unit fell sharply.
Net income more than doubled to US$13.2 billion from US$5.83 billion the previous year.
But finance director Ian McKay said HSBC would lower its previous return on equity target of 15-19 per cent to 12-15 per cent. Return on equity measures banks' profits compared to shareholders' capital.
Gulliver, the former head of HSBC's investment banking unit who replaced the popular Michael Geoghegan as CEO in January, pocketed US$9.53 billion in pay and bonuses last year, making him the bank's highest paid director. He earned US$15.327 million in 2009.
HSBC's costs rose to 55 per cent of revenues last year, above its 52 per cent maximum target.
Gulliver blamed this partly on 'higher compensation costs in Asia and Latin America'. He said bankers in these fast-growing emerging markets expected higher pay because they 'did not have a financial crisis'.
Pre-tax profits in HSBC's investment banking division fell 10 per cent to US$9.536 billion last year. Nonetheless, HSBC handed US$4.74 billion worth of bonuses to investment banking staff, a 9 per cent increase on 2009. The bank's top 280 staff were paid US$472 million in salaries and bonuses.
Chairman Douglas Flint claimed bonuses were an unavoidable cost of doing business. 'The bonus pool is part of generating the profits of which we pay dividends,' he said.
Flint also revealed that the British government's planned new tax on banks' bonuses would have shaved US$600 million off HSBC's profits had it been implemented in 2010.
'This constitutes an additional cost of being based in the UK,' he said. But HSBC has repeatedly insisted it has no plans to move its corporate headquarters to Hong Kong.
The bank made a US$454 million profit in the United States last year, compared to a US$7.3 billion loss in 2009. It booked US$8.29 billion of bad debt charges in North America, down from US$15.66 billion the year before.
HSBC shuttered branches of its Household Finance subprime lender two years ago and said it would 'run off' the loan book, meaning it was effectively closing for new business.
HSBC's net operating income fell 8 per cent, reflecting the effects of sustained low interest rates and the bank's shrinking US consumer loan book.
Yesterday, Gulliver chose not to reveal any changes he plans to make at HSBC, claiming it was unnecessary to discuss strategy at an annual results presentation.
'Results are results and strategy is strategy,' he said. He added he would update investors on strategy in May.
Profit before tax