LONDON BRIEFING:BANKING GIANT HSBC saved the best - and the worst - 'til last on Monday as it brought Britain's 2007 banking reporting season to a close. The best came in the form of its biggest-ever profit - $24 billion - and the worst in its record $17 billion charge to cover bad loans.
It is a massive figure for an impairment charge and makes the 10 per cent uplift in profits at Britain's biggest bank all the more remarkable.
HSBC's top team certainly seem to be pleased with themselves. Chairman Stephen Green described the results as "comforting" and, despite the disappearing $17 billion, directors have awarded themselves hefty pay rises - £3.5 million in pay and bonuses last year for chief executive Mike Geoghegan, up from £2.8 million in 2006, plus £5 million of shares which could vest in 2010.
For Green, there was an award of £3.7 million of shares to vest in 2010, plus an increase in salary from £2.9 million to £3 million. He also made £1 million from shares' vesting last year.
Like the bank's profit - and its bad debt charge - these are big figures. HSBC has also revealed that it faces having to pay out a further £300 million to customers reclaiming overdraft fees if the current test case goes against the banks.
It has already paid out £115 million to customers.
Under pressure from activist US shareholder Knight Vinke, HSBC has brought in its first-ever set of performance targets, which include a return on equity of between 15 per cent and 19 per cent. It will also add emerging markets to the group of banks against which it measures its performance.
The targets were accompanied by a mini-shake-up in the boardroom and an overhaul of the bank's top-level pay structures.
Joining the board is the man believed to be HSBC's highest-earner, Stuart Gulliver, who heads the investment banking side and is thought to have earned £10 million last year.
He is accompanied by Sandy Flockhart, chief executive of HSBC in Asia, and by two new heavy-hitting non-executive directors - Safra Catz, who is president and chief financial officer of Oracle, and Narayana Murthy, co-founder of the Indian technology group, Infosys.
Quitting the board are a trio of long-serving non-execs - Baroness Dunn, Sir Brian Moffat and Lord Butler - who have been criticised for their lack of independence and who will step down as directors at the agmnnual meeting later this year. The changes to the pay structure will see the chairman's bonus paid in shares rather than cash, thus aligning his pay with the company's performance.
Under the new plan, Geoghegan would be able to receive a bonus worth 400 per cent of his not-inconsiderable salary, up from 250 per cent now, although, along with other executives, he will be required to plough up to five times his salary back into the bank's shares.
These details were revealed in the HSBC annual report. In the report, the bank apologised for the lack of clarity on its long-term share plan and promised consultation with its shareholders, a move which went some way to appeasing Knight Vinke. The activist US investor first raised the subject of HSBC's opaque executive remuneration plan last year, when it launched its campaign for change at the bank.
But there were no apologies from HSBC for its biggest mistake - the $14 billion acquisition of the US subprime lender Household International in 2003. It was Household that accounted for the bulk of HSBC's $17 billion bad debt charge and Household that reduced HSBC's North American profits from $4.6 billion in 2006 to just $91 million last year.
HSBC has made it clear that it will stick with the US business even though, with the housing crisis in the US showing little sign of abating, there is almost certainly just as bad, if not worse, news to come this year. While chairman Stephen Green insisted on Monday that it would be "irresponsible" to exit the business now, the reality is that a sale on any reasonable terms would be virtually impossible in the current climate.
Knight Vinke has repeatedly called for the US arm to be offloaded, or at least ring-fenced, and for HSBC to instead focus its efforts on fast-growing emerging markets, which performed well for the group last year. It will not be dropping those demands simply because of a few changes in the boardroom and the additional details on pay that have been offered up by the bank.
• Fiona Walshwrites for the Guardiannewspaper in London
