HSBC Holdings Plc reports it was profitable in every customer group and region, including North America, last year, for the first time since 2006. But profits at the investment banking arm shrank to US$9.5 billion, from US$10.5 billion in 2009, contributing to the company's missing analyst estimates.
The bank's pre-tax profit more than doubled to US$19 billion, an increase of US$11.9 billion or 169%, compared with 2009's US$7.1 billion. Net income more than doubled to US$13.2 billion from US$5.83 billion the previous year as loan impairment charges went down US$12.4 billion to US$14 billion, the lowest since 2006. But 15 analysts polled by Bloomberg expected net profit to come in at US$13.7 billion, the median estimate.
Nevertheless, the results confirm the strength of the global economic recovery, particularly in the emerging markets. "Asia contributed the largest proportion to underlying pre tax profits, while the contributions made by Latin America and the Middle East also increased," says Stuart Gulliver, Group Chief Executive of HSBC.
The bank made a US$454 million profit in the United States last year, compared with a US$7.7 billion loss in 2009. Asia Pacific contributed US$5.9 billion, while Europe generated US$4.3 billion.By customer group, HSBC's Personal Financial Services performance achieved pre-tax profit of US$3.5 billion. Commercial Banking was up strongly, with pre-tax profit rising 48% to US$6 billion. Global Banking and Markets pre-tax profit of US$9.2 billion, was second only to 2009.
HSBC also reports that customer lending went up by 8% to US$958 billion, while deposits rose 7% to US$1.2 trillion.
But Gulliver expressed concern at the deterioration in the cost-efficiency ratio, which stood at 50% in 2009. "The cost efficiency ratio rose to 55.2%, which is above our target range and unacceptable to me," says Gulliver. "The causes were constrained revenues and, in part, investment in strategic growth initiatives across the business together with higher staff costs."
According to Gulliver, the increase reflected one-off payroll taxes of US$0.3 billion paid in 2010 in respect of the previous year and a pension accounting credit of US$0.5 billion in 2009 and US$0.1 billion in 2010. "It is also clear that we need to re-engineer the business to remove inefficiencies."
Commenting on new banking regulations, Gulliver says HSBC fully supports the rationale of the Basel III proposals which require banks to hold more capital. "This is absolutely core to ensuring that governments and taxpayers are better protected in future than they have been in the past. However, we believe that ultimately the level for the common equity tier 1 ratio of the Group may lie in the range 9.5 to 10.5%. This exceeds the minimum requirement for common equity tier 1 capital plus the capital conservation buffer."
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