HSBC profits below par

1st Mar 2010 08:44

Global banking giant HSBC reported pre-tax profits close to market forecasts in 2009, but a bigger than expected loss on the value of its own debt upset investors.Pre-tax profit of $7.08bn (£4.7bn) was slightly less than market expectations and also down 24% from the $9.31bn seen in 2008, as write-downs on the value of its own debt hit $6.3bn. Analysts expected just $5bn. But underlying pre-tax profit, which excludes the goodwill impairment in North America in 2008, rose 56% to $13.3bn from $8.6bn the year before.The group was profitable in all regions except North America, where losses virtually halved to $7.74bn from $15.52bn. In its US consumer finance division, which is being wound down, loan impairment charges fell by $1.6 billion but were offset by rises in other regions.'Loan impairment charges and other credit risk provisions for the Group rose by 9% to $26.5bn, and we believe this was acceptable given the severity of the global recession and the rise in unemployment in most developed markets,' said HSBC chief executive Michael Geoghegan.Profits in Europe tumbled to $4.01bn from $10.87bn in 2008, while Hong Kong saw profits ease to $5.03bn from $5.46bn. The rest of the Asia-Pacific region saw profits dip to $4.2bn from $4.72bn in 2008.Losses in the Personal Financial Services division narrowed sharply to $2.07bn from $10.97bn.But Charles Stanley points to a bigger than expected slowdown at GBM during the second half as profit of $4.2bn was well short of the $6.3bn reported in the first half.The deduction to the results due to the change in the fair value of HSBC's debt was also greater than the market had predicted, while the performance in the Middle East was poor, said the broker.But it retains an 'accumulate' rating on the bank due to its strong presence in emerging markets, which it believes rivals will fine hard to replicate.Commercial Banking profits declined to $4.28bn from $7.19bn while Private Banking saw profits ease to $1.11bn from $1.45bn.Gross interest income fell to $62.1bn from $91.30bn in 2009 while net interest income dipped to $40.73bn from $42.56bn a year earlier.HSBC's cost efficiency ratio was 52.0% compared with 47.2% in 2008. The 2008 cost efficiency ratio including goodwill impairment was 60.1%. The group has set a target range for cost efficiency of 48 to 52%.Helped by its $12.5bn rights issue the bank's tier 1 ratio increased by around two and a half percentage points (250 basis points) to 10.8% at the end of 2009, while the core tier ratio rose 240 basis points to end 2009 at 9.4%.'These results were ahead of our expectations at the outset of the year, and they underscore the resilience of HSBC throughout the most difficult stages of the economic cycle,' claimed Geoghegan.'As the world emerges from recession, we anticipate a two-speed recovery. In 2010, we expect GDP in emerging markets to grow by over six per cent, while the developed world struggles to reach two per cent. A bank's performance reflects that of the underlying economies it serves, and this presents both challenges and opportunities for the sector' Geoghegan said.The group has declared a full year dividend of 34 cents, or 22p, down from 93 cents last year. The dividend for the fourth quarter was 10 cents.