HSBC sets the tone as profits double to $11bn

The hand-wringing's started already, as HSBC becomes the first of the banks to report bumper profits.

by
Last Updated: 31 Aug 2010

This week the big banks are reporting their results, and it looks as though they made a killing in the first half of this year: first up the ramp this morning was HSBC, which saw pre-tax profits more than double to $11.1bn as the threat from dodgy debts receded. Lloyds, RBS and Barclays are also expected to report bumper profits later this week. So can they expect widespread celebrations about the return to the health of this critical sector? Or general uproar that they're making such fat profits at a time when businesses are still struggling to borrow? Hmm, we wonder...

To be fair to HSBC, it didn't take a penny of taxpayer cash during the recession, so it's more entitled than most to these better-than-expected profits. Apparently it made money in every area of its global business apart from the US (where it's still feeling the pain from its ill-judged acquisition of sub-prime lender Household Financial), while its cash reserves are among the strongest in the business. Its provisions for bad debts almost halved to $7.5bn (which is a good sign for the economy as a whole, because it means fewer people are defaulting on loans), but even if you strip this out, underlying profits were up 30%. All good for shareholders, who'll get a juicy $1.4bn dividend.

It's likely to be a similar story for all the big UK banks this week - although financial markets have been a bit up and down, hurting investment banking profits, on the retail side they've benefited not only from an improving economy, but also reduced competition (which will continue until such time as these much-vaunted new banks can ever provide a meaningful threat). But they shouldn't expect much praise for this, particularly as long as lending is down. Yesterday Chancellor George Osborne was on their case again to start lending more to businesses - and this will intensify if they all announce massive profits this week.

A healthy financial sector is vital for our economy. But it still looks as though the banks – which have quite clearly benefited hugely from explicit and implicit Government support over the last few years, and that includes HSBC – are pocketing too much of the proceeds for themselves, and not funnelling enough to business (the banks insist the demand just isn’t there – but, although they may have a point to some extent, that’s a lot to do with the exorbitant fees they’re all charging). What’s more, there’s still a widespread sense that they haven’t atoned sufficiently for their misdeeds in the run-up to the financial crisis; that it’s been far too easy for them to go back to ‘business as usual’. Until this changes, they shouldn’t expect any improvement in their popularity...

In today's bulletin:
HSBC sets the tone as profits double to $11bn
Does the fall in working hours point to culture shift?
BlackBerry ban unlikely to be fruitful for UAE and Saudi
A Traveller's Tale: No recession woes for Australia
MT Expert's Ten Top Tips: Reduce the impact of a crisis on employees

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today