HSBC cut its profitability targets due to the cost of tougher global bank regulations, and disappointed investors as its 2010 earnings came in slightly below analysts' forecasts.
HSBC's pretax profits for the year ending December 31st more than doubled from 2009 to $19 billion, but this figure came in below the average pretax profit forecast of $20 billion, according to analysts polled by Reuters Estimates.
HSBC said it had made a good start to the year but new chief executive Stuart Gulliver cut the bank's long-term return on equity (ROE) target to 12-15 per cent from a previous 15-19 per cent target.
"It's about a billion light at the pretax level and pretty much everybody had said it was going to be $20 billion pretax and $19 billion underlying and it wasn't and they cut the ROE (return on equity) target again so that's the bad news," said MF Global analyst Simon Maughan.
Banks around the world are under pressure from regulators to raise capital to strengthen their balance sheets, in order to prevent a return of the 2008 credit crisis which resulted in the collapse of Lehman Brothers.
HSBC's new finance director Iain Mackay said the bank's new, scaled back return on equity target not only reflected the tougher capital requirements for banks but also global economic uncertainty, as highlighted by recent political tensions in the Middle East and north Africa.
"We've targeted 12 to 15 per cent through the cycle for return on equity, principally taking into consideration what we view as a somewhat unstable and uneven economic recovery over the coming years as well as much higher capital requirements," said Mr Mackay.
HSBC's decision to cut back its return on equity targets followed a similar move by rivals Barclays and Credit Suisse.
Both those lenders scaled back their profitability expectations, saying that their returns would be held in check by regulatory requirements to hold more capital.
Mr Gulliver took over as CEO from Michael Geoghegan at the start of the year.
HSBC's annual report, also released today, showed Gulliver was paid £6.2 million last year, when he ran investment banking. That included a £5.2 million bonus and compared with £9.8 million in 2009.
Reuters