A woman leaves an ATM of an HSBC branch in Hong Kong. HSBC said on July 30 it has made a $700 million provision to cover "certain law enforcement and regulatory matters" in US business. Philippe Lopez / AFP

Bank's European businesses' $667m pretax loss badly impacts results

HSBC Holdings Plc, Europe's largest bank, said net income declined 8.4 percent in the first half this year due to disappointing European operations.

Net income fell to $8.44 billion in the six months ended June 30, 2012 from $9.22 billion a year earlier, after the bank's businesses in Europe posted a pretax loss of $667 million compared with a gain of $2.15 billion last year, HSBC said in a statement on Monday.

It has also set aside a total $2 billion to clear up the mess it confronts currently, including $1.3 billion to compensate UK customers for mis-selling, while $700 million will be used to cover its US regulatory matters, according to the bank.

The result fell short of the $9.1 billion median prediction by 11 analysts surveyed by Bloomberg News.

The bank's pretax profit rose 10.4 percent to $12.7 billion in the first half over $11.5 billion last year, lifted by $4.3 billion asset sales during the period.

The bank has made substantial and encouraging progress in key areas, increasing revenues in faster-growing markets such as Asia and will continue to reshape the organization, HSBC's Chief Executive Officer Stuart Gulliver said in the statement.

Pretax profit in Hong Kong and the rest of Asia-Pacific rose $1.31 billion to $8.13 billion during the past six months, accounting for 63.8 percent of the total pretax profit it gained worldwide.

This compares with the $6.82 billion pretax profit earned in the region, and the region's 59.5 percent contribution to the total profit earned in the first six months of 2011, according to the bank.

Non-profitable business disposals were further advanced with 19 new transactions announced during the period, making a total of 36 since the beginning of 2011 after the bank announced it would save as much as $3.5 billion through such divestments by the end of next year, according to the statement.

Gulliver has overseen more than 28 asset sales since he became CEO in January 2011, according to a Bloomberg report.

In mid-May, Gulliver said the bank aims to generate additional revenue of up to $2 billion - doubling its previous target - from further cooperation between HSBC's investment bank and commercial banking, and between commercial banking and the private bank.

The businesses disposal should help to cut costs as well as to refocus the bank on faster-growing areas, a US-based brokerage firm Cantor Fitzgerald wrote in a research report on Monday.

However, despite management's renewed focus on reducing the cost to income ratio, "the rising wage pressures in Asia and growth investments will prohibit a significant reduction in 2012," said the report.

In August 2011, the bank announced that it would shed 30,000 jobs worldwide by the end of 2013, including 3,000 job cuts in the city. In March, a spokesperson from the bank said the Hong Kong layoffs would be completed by the first half this year, but stressed that the total layoffs would be less than 3,000.

HSBC share gained HK$1.10 or 1.72 percent to close at HK$65.25 on its Hong Kong trading on Monday, compared with the 1.61 percent gain of the city's benchmark Hang Seng Index. The stock has gained nearly 11 percent in Hong Kong so far this year.

litao@chinadailyhk.com

(HK Edition 07/31/2012 page2)