HSBC Mena profit falls on higher operating expenses
HSBC, Europe’s biggest bank by assets, said on Tuesday that its fourth-quarter profit in the Middle East and North Africa dropped by 29.6 per cent as unspecified operating expenses outweighed gains in net interest income.
The bank also reported a steep global loss that sent its share price tumbling.
In the Mena region, profit before tax slipped to US$195 million in the three months to December 31, reversing a profit of $277m in the same quarter a year earlier.
Net interest income rose by 10.6 per cent to $426m in the latest fourth quarter compared with $385m in the corresponding period of 2015. The profit from lending to individuals rose 10.1 per cent to $163m in the quarter from $148m in the same time frame in 2015.
Operating expenses rose 24.4 per cent to $377m in the fourth quarter compared with $303m a year earlier.
This comes even as the bank’s chief executive, Stuart Gulliver, is battling to reduce expenses.
HSBC representatives were not immediately available to explain the reason for the sharp rise in Mena operating expenses.
HSBC follows many other banks in the region that have reported lacklustre earnings for the fourth quarter. The dramatic drop in the price of oil, which is down by half from its peak in the summer of 2014, has reduced the demand for loans and increased the level of debt defaults.
For all its business worldwide, HSBC reported a $3.4 billion pretax loss for the quarter. The bank blamed slowing growth in its core markets of Hong Kong and the United Kingdom, while its adjusted profit fell $1.2bn short of analyst estimates. The lender said it would buy back $1bn of stock in the first half and signalled it may repurchase more later this year.
Besides trying to cut costs, Mr Gulliver is paring HSBC’s sprawling global footprint after five years of declining revenue.
The bank has increased its cost-cutting target by $1bn to $6bn of savings, while cautioning it faces more than $3bn of revenue headwinds in 2017, including currency movements and record-low interest rates in the UK. Executives also warned that the US president Donald Trump’s protectionist stance and Brexit could damage their business.
“We anticipate new challenges in 2017 from geopolitical developments, heightened trade barriers and regulatory uncertainty,” Mr Gulliver said.
The bank’s shares were down 6.9 per cent on Tuesday, their worst day since August 2015, and were trading at 662.50 pence at 12.50pm in London. Still, the shares have risen by about 46 per cent since the UK voted to leave the European Union on June 23, the most of any major European bank.
HSBC has now lost about $20bn of revenue since Mr Gulliver took over in 2011. Pretax profit on an adjusted basis, which excludes one-time items, jumped 39 per cent to $2.62bn in the fourth quarter, the bank said. That missed the $3.78bn average estimate of six analysts compiled by Bloomberg.
One bright spot for HSBC was that it joined its global peers in benefiting from the surge in fixed-income and currency trading last quarter. Adjusted pretax profit from the global banking and markets division, which houses the investment bank, almost doubled to $1.3bn.
* Additional reporting by Bloomberg
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Updated: February 21, 2017 04:00 AM