HSBC scales back profits target

28th Feb 2011 07:01

HSBC more than doubled its profits to over $19bn (£11.7bn) last year as bad debts tumbled, but the global banking giant has toned down its return on equity target after analysing the likely effects of new banking regulations.The UK's largest bank posted a pre-tax profit of $19.04bn, an increase of $12bn, or 169%, on 2009's $7.1bn.The pre-tax profit figure failed to please investment analysts, who had been hoping the bank would crack the $20bn barrier. HSBC's cost efficiency ratio was 55.2% compared with 52.0% in 2009. The figure was above the bank's target range and deemed "unacceptable" by group chairman Douglas Flint.While Flint was disgruntled at the rise on the cost efficiency ratio the City was displeased that the result of the group's review of its target range for return on equity had been lowered by 3 percentage points at both ends to 12-15% now that the effects of new banking regulations are clearer. Return on average total shareholders' equity rose from 5.1% to 9.5% in 2010, reflecting increased profit generation during the year.Total operating income improved to $80.04bn from $78.6bn. Net operating income before loan impairment charges and other credit risk provisions rose 3.1% to $68.2bn, while total operating expenses were up 9.6% to $37.7bn. "In a period of sustained low interest rates, revenues remained constrained, reflecting four principal factors: reducing loan balances in our US business; lower trading income in Global Banking and Markets resulting from lower client activity; adverse fair value movements on non-qualifying hedges; and a reduced contribution from balance sheet management," HSBC said. On an underlying basis, profits increased by 36% from $13.5bn to $18.4bn. Loan impairment charges and other credit risk provisions were $14.1bn in 2010, down by $12.5bn on 2009.The group was profitable in every customer group and region for the first time since 2006, with even North America pitching in with a positive contribution of $454m, compared to a loss of $7.74bn the year before.The group's traditional Asia focus became even more pronounced, with Hong Kong alone accounting for 29.9% of profits at $5.69bn (2009: $5.03bn), while the rest of the Asia-Pacific region weighed in with a contribution of $5.90bn, up from $4.20bn in 2009, representing 31.0% of total group profits.On a divisional basis, the profits from the investment banking arm, Global Banking and Markets, fell 9% to $9.54bn from $10.48bn in 2009, but the unit still contributed just over half of the group's profits.The Commercial Banking division saw a strong improvement in profitability, while the group's Personal Financial Services division moved back into the black.Commercial banking profits grew 42.5% to $6.09bn from $4.28bn the year before while the profit from Personal Financial Services was $3.52bn, compared to a loss of $2.07bn in 2009.Profits from the Global Private Banking dipped to $1.05bn from $1.11bn the year before.Employee pay rose 7% to $19.8bn from $18.5bn. The highest paid banker pocketed a cool £8.4m plus change last year, and 280 of HSBC's high fliers shared in bonuses of $374m, an average of $1.34m each. Of these, 186 were based in the UK and their aggregate share of the bonus pot was $172m, giving an average pay out of £0.92m.The board of directors, recently reshuffled after a power struggle which saw Michael Geohegan step down as chief executive after he was passed over for the chairman role, is not short of people with seven figure pay packets.Total remuneration for Geohegan was £5.82m, while his successor (formerly the finance director) Douglas Flint pocketed £4.09m, up from £3.20m in 2009. Lord Green, who stepped down as chairman, took home £1.19m, while his replacement, Stuart Gulliver banked £6.17m, down from £9.83m the year before when he received a £9m bonus.Vincent Cheng, who will be giving up his executive directorship at the next annual general meeting, got by on £1.99m, down from £2.86m in 2009, while Alexander Flockhart's total emoluments improved to £3.26m from £3.01m. Iain MacKay, the new chief financial officer, was the poor relation, earning just £181,000, having moved into the role on 3 December. MacKay was formerly the chief financial officer of HSBC's Asia-Pacific division. "We have had a good start to the year, with continued momentum in lending, mainly in emerging markets and in respect of global trade," new chief executive Stuart Gulliver added.The dividend for the year rises to 36c per share.