HSBC strikes back

The UK's largest bank reported a 4% rise in profits to £7.1bn after three months without any major fines. Must make a nice change.

by Adam Gale
Last Updated: 03 Sep 2015

The revelation that HSBC’s Swiss Private Bank may have been implicated in some naughty tax affairs doesn’t appear to have spoiled an otherwise good news quarter. Just how good the news was depends on how you look at it.

In the first three months of this year, HSBC’s reported pre-tax profit was $7.1bn (£4.8bn). That’s a 4% increase over the first quarter of 2014, or a 307% increase over the final quarter last year. If you had those two numbers to present, which would you emphasise?

To be fair to HSBC, it didn’t bury the 4% behind the 307%, as other firms might have done (naming no names), but it clearly wanted its recent turnaround known. Quarter-on-quarter results are rarely given headline space in banks’ financial reports.

So why the discrepancy? Put simply, HSBC got a mauling in the final quarter of 2014, particularly from regulatory fines. In fact, from April to December last year, the bank’s ‘adverse significant items’ – Forex fines, PPI compensation claims and the like – totalled a whopping $3.7bn. So far this year, conditions have been far more benign, with no heavy hits.

The year-on-year figure reveals a pattern of steady underlying recovery. Even when adjusted for currency movements and significant items, it’s HSBC’s best quarter for some time – adjusted pre tax profit was up 5% to $6.9bn.

In line with banks in the UK and on Wall Street, HSBC’s investment division (Global Banking and Markets) is experiencing a renaissance, with adjusted profits up 10.5%. The bank is growing generally too though, with increased staff numbers contributing to 6% higher operating expenses.

One division that hasn’t grown is the private bank. Profits there fell 1.7% to $180m. HSBC is appealing a French magistrate’s decision to put it under formal criminal investigation for the Swiss banking scandal, but the whole affair can’t exactly be good for business.

As for the question of whether the banking levy will finally drive HSBC out of the UK, it seems we won't have to wait long for an answer. 'It's going to take us a few months, not years', boss Stuart Gulliver told the BBC, pointing out that it was getting hard to explain to job applicants in Guangzhou why their salaries would be restricted by what was happening in the UK.

This appears to have spooked investors somewhat. After an initial 1.8% rise, shares then dropped 2.1% to 632.7p.

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