23rd Feb 2015 08:58
LONDON (Alliance News) - HSBC Holdings PLC Monday reported a 17% drop in annual pretax profit, citing lower disposals from business disposals, as well as numerous fines, settlements, and the the cost of provisions for customer compensation in the UK.
In a statement, the banking giant said it made a USD18.68 billion pretax profit in 2014, compared with USD22.57 billion in 2013. According to consensus estimates compiled by the company, financial analysts had expected HSBC to report a pretax profit of USD20.95 billion.
On an adjusted basis, which excludes the year-on-year effects of foreign currency translation and "significant" items, pretax profit was down to USD22.83 billion from USD22.98 billion.
Still, HSBC increased its dividend per share to USD0.50 from USD0.49.
However, the group also said it is cutting its return on equity target to "more than 10%" from its previous target of between 12% and 15%, as return on equity fell to 7.3%, compared with 9.2% in 2013. The group said its cost target will be to grow revenue faster than costs on an adjusted basis.
Chief Executive Stuart Gulliver said that 2014 was a challenging year in which the bank's efforts to improve its performance were carried out against a backdrop of a higher operating cost base.
"Profits disappointed, although a tough fourth quarter masked some of the progress made over the preceding three quarters. Many of the challenging aspects of the fourth quarter results were common to the industry as a whole. In spite of this, there were a number of encouraging signs, particularly in commercial banking, payments and cash management and renminbi products and services. We were also able to continue to grow the dividend," Gulliver said.
Chairman Douglas Flint weighed in on what he called a "very broad range of uncertainties and challenges" that await in 2015, most of which he thinks are outside the banking group's control. However, he highlighted the question of whether the UK will remain a member of the EU as a particular concern for HSBC.
"One economic uncertainty stands out for a major financial institution headquartered in the UK, that of continuing UK membership of the EU. Today, we publish a major research study which concludes that working to complete the Single Market in services and reforming the EU to make it more competitive are far less risky than going it alone, given the importance of EU markets to British trade," Flint said.
The weeks running up to the annual results statement have been dominated by allegations made in a series of reports in the national press that HSBC's Swiss private banking unit helped clients to evade UK tax between 2005 and 2007, prompting an apology signed by Chief Executive Stuart Gulliver. On the eve of the results, the Guardian reported that Gulliver held about GBP5 million in a Swiss account but the report did not allege wrongdoing.
Monday's results statement included an apology by Douglas Flint, who said the disclosures around the Swiss private bank's "unacceptable historical practices" are a reminder of how important it is to show "constant vigilance" over its controls and compliance.
"In response to, and in parallel with, the tax investigations prompted by the data theft more than eight years ago, we have been completely overhauling our private banking business, putting the entire customer base through enhanced due diligence and tax transparency filters. Our Swiss Private Bank customer base and the countries we serve are now both about one-third of the size they were in 2007," Flint said.
HSBC shares were down 5.2% at 573.75 pence on Monday at 0855 GMT, making it comfortably the worst-performing stock in the FTSE 100 on the day.
By Samuel Agini; [email protected]; @samuelagini
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