Financial Services

HSBC profit slumps 62% as it sets $1bn share buy-back

Impairment of goodwill in private banking and sale of Brazilian unit hit profits

The $1 billion share buy-back takes HSBC’s announced buy-backs since the second half of 2016 to $3.5 billion following the bank’s disposal of its Brazil unit in July last year in a $5.2 billion deal

Sumeet Chatterjee
Lawrence White
Tue Feb 21 2017 - 06:23

HSBC‘s full-year profit slumped 62 per cent and fell far short of forecasts on Tuesday as the bank took hefty writedowns from restructuring and flagged near-term brakes on revenue growth.

Shares in Europe's largest bank slid more than 7 per cent after its revenues fell by a fifth from 2015. Chief executive Stuart Gulliver is battling to reverse five years of declining revenue as he pares back

HSBC made profit before tax of $7.1 billion in 2016 compared to $18.87 billion for the previous year, well below an average analyst estimate of $14.4 billion.

Despite the fall, HSBC announced a new $1 billion share buy-back, taking buy-backs since the second half of 2016 to $3.5 billion, as the bank returns cash to shareholders after the sale of its Brazil business last July in a $5.2 billion deal.

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But the worse than expected profits took their toll on the bank‘s bonus pool, which it cut by 12 per cent to $3 billion, and sets the stage for results this week from Lloyds, Barclays, RBS and Standard Chartered.

While HSBC is expected to benefit in the long run once interest rates rise worldwide, the one-off charges showed the toll its restructuring is taking on short term profits.

“The Brazilian disposal highlights the key problem for HSBC – not only is the quality of the bank‘s earnings weak, as evidenced by yet another messy set of numbers...but the quantity is lacking as the lender is still trying to shrink itself back to health,”“ said Russ Mould, investment director at online investment manager AJ Bell.

HSBC‘s core capital ratio – a measure of its financial strength – was 13.6 per cent, against expectations of 13.8 per cent, and the bank signalled a number of factors that would pressure its revenues in 2017, including a $500 million increase in regulatory capital costs, lower interest rates in Britain and adverse foreign exchange rates.

A $3.2 billion impairment in its private banking business led HSBC to report a $3.4 billion fourth-quarter loss, against analysts‘ expectations for a profit, as the accounting valuation of the unit caught up with years of declining performance. - Reuters

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