HSBC third-quarter profit rises as legal costs fall

Chief executive Stuart Gulliver unveiled a three-year plan in June to pare back a sprawling global network, shut money-losing businesses and eliminate as many as 25,000 jobs after compliance costs surged.

HSBC headquarters in Canary Wharf, London. The bank’s pretax profit rose to $6.1 billion from $4.6bn a year earlier.  Simon Dawson / Bloomberg
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HSBC beat analysts’ third- quarter profit estimates, as costs and litigation charges declined at a faster pace than revenue, with Europe’s largest lender saying it may need more time to determine whether to move its headquarters from London.

Pretax profit rose to US$6.1 billion from $4.6bn a year earlier, London-based HSBC said in a statement on Monday. That beat the $5.2bn average estimate of 14 analysts compiled by the bank. Operating costs fell 19 per cent to $9bn, offsetting a 4.4 per cent drop in revenue to $15.1bn, hurt by turmoil across Asian markets.

Chief executive Stuart Gulliver unveiled a three-year plan in June to pare back a sprawling global network, shut money-losing businesses and eliminate as many as 25,000 jobs after compliance costs surged. The third-quarter result benefited from a $1.4bn decline from a year earlier in fines, settlements and redress for UK customers. HSBC said the board requested “further information” as it seeks to take a decision on whether to move headquarters abroad, with a further update planned for early 2016.

“HSBC’s reassuring dullness shines through,” said Ian Gordon, an analyst at Investec with a buy rating on the stock. “Revenue weakness was concentrated in retail banking and wealth management and the investment bank, but strong cost and impairment performances delivered a resilient result which, in a challenging quarter for U.K. banks, offers modest encouragement.”

At the retail banking and wealth management division, adjusted pretax profit fell to $1.5bn from $2.1bn a year earlier. In global banking and markets, which houses the investment bank, profit was little changed at $2bn, while revenue fell 20 per cent after “challenging market conditions” slashed rates and credit trading volumes. Global private banking reported a drop of 96 per cent to $8 million.

“The revenue weakness was mainly due to weaker markets,” said Raul Sinha, an analyst at JPMorgan Chase & Co. “Overall, this was an in-line quarter, with little to get excited about” as the bank continues to build capital “and tries to bring down costs despite regulatory and inflation pressures.”

The bank, which has been generating most of its earnings in Asia, is assessing whether to move its headquarters away from London, partly because of increasing taxes and some of the strictest bank regulations in the world. Among the criteria listed as part of its assessment are also economic growth and long-term stability.

Pretax profit in Asia rose 2 per cent to $3.5bn in the quarter from a year earlier and impairments on bad loans fell 16 per cent to $638m. HSBC has said half of $180bn to $230bn of risk-weighted assets it plans to redeploy under a revised strategy will be invested in Asia, as it adds some 4,000 jobs in China’s Pearl River Delta region over the next three to four years,

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