HSBC reports 10% increase in H1 profit
Print Edition
HSBC Holdings beat expectations with a 10 percent rise in first-half profit due to strong performance in Hong Kong and a US$5.2 billion deal to sell its business in Brazil.
Europe’s biggest bank by market value is to sell its unprofitable Brazilian operations to Banco Bradesco SA, Brazil’s second-biggest private-sector bank, for a higher-than-expected 17.6 billion reais (US$5.2 billion).
The deal is part of a plan by Chief Executive Stuart Gulliver to shed underperforming businesses and reduce costs, including almost 50,000 job cuts, to try to improve returns.
HSBC is likely to keep its bank in Britain because of its strong prospects, Gulliver said.
The bank said profit growth was driven by an investing frenzy in Hong Kong among individual customers prompted by China’s soaring markets earlier in the year.
HSBC has become reliant on Hong Kong for profits as its businesses in Europe, the United States and other emerging markets slow. The London-based bank has said it is considering moving its headquarters back to the Chinese city.
It intends to complete a review of its headquarters by the end of the year, and Hong Kong is seen as the most likely alternative.
The market turmoil in China in the past few weeks could mean a gloomier second-half outlook. HSBC said its performance last month was satisfactory, but said the banking environment remained challenging and the economic climate was uncertain in China and the eurozone.
“We don’t see anything alarming coming from what has happened in China, but there undoubtedly will be some muted impact on our business both from the sell-off in the stock market and from the reduced economic activity we have seen,” Gulliver said.
China growth on track
China’s stock markets helped drive profits for the bank’s broking business in Hong Kong via the Stock Connect trading link with Shanghai because mainland shares soared prior to their June crash.
Gulliver said he still expects China’s economy to grow by about 7.1 percent this year, but some of the bank’s big corporate customers have seen a slowdown in Chinese sales, and revenues in wealth management and equities could slip from the first half.
China has forecast economic growth of about 7 percent for this year, which would be its weakest in 25 years.
“The bank’s profits benefited from the boost from Stock Connect before the market turned, so I wouldn’t extrapolate the same level of performance into the third quarter and beyond,” said Ian Gordon, an analyst at Investec Securities.
Gulliver said HSBC is likely to keep its British business after warning two months ago it could look to sell if new rules left it without control over strategy, risk, management and dividends.
“You should work on the assumption that it is a bank we would like to keep, because it’s got excellent returns from what we see going forward and the UK is a profitable banking market,” he said.
HSBC’s pretax profits in the first six months of the year were US$13.6 billion, up from US$12.3 billion a year earlier and well above analysts’ average forecast of US$12.5 billion according to a poll conducted by the bank.
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