HSBC more than doubles pre-tax profits to $17.2b in 2017

Banking giant HSBC more than doubled pre-tax profit to $17.2 billion in 2017, it announced Tuesday, after a recovery drive to streamline its business and slash costs.

Adjusted pre-tax profit also rose 11 percent year-on-year to $21 billion as revenue growth outweighed operating expenses, the bank said.

But analysts said that although HSBC had bounced back after restructuring and a string of financial scandals, it missed some profit forecasts with margins looking comparatively good in 2017 because of specific one-off losses the previous year, including the sale of the bank’s Brazil business.

The bank’s shares were down in afternoon trading, falling 2.09 percent in afternoon trading at HK$81.8 ($10.5).

Analysts cited the lack of a reliable growth engine due to inconsistent markets and the threat of US interest rate hikes as problematic for the bank, with a lack of clarity on share buybacks weighing on the stock price.

The results came as new chief executive John Flint takes over from Stuart Gulliver, who steps down following seven years at the helm.

Flint, who was previously head of retail banking and wealth management at HSBC, has said he wants to accelerate the pace of change at the bank. The Asia-focused firm has laid off tens of thousands of staff since 2015 as part of a wide-ranging overhaul, including the sale of its Brazil business.

Its strategy of expanding business in the Pearl River Delta, an area of southern China including major cities such as Hong Kong and Guangzhou, has boosted performance, with Asia business driving more than 75 percent of reported and adjusted profit in 2017, the bank said.

Gulliver described HSBC as “simpler, stronger, and more secure” than it had been when he became chief executive.

But chairman Mark Tucker warned that while the bank was optimistic about the global economy in 2018, rising international tensions and the threat of protectionism could be disruptive.

Tuesday’s surge in reported pre-tax profit was a 141 percent rise on the $7.1 billion it posted in 2016.

Net profit stood at $9.7 billion in 2017, up from $1.3 billion year-on-year.

“We have been waiting for so long for the comeback of HSBC and I do really think that they are in better shape than other international banks,” said Dickie Wong of Kingston Securities Limited, citing dividend yields and cost efficiency as among its strengths.

But Wong said the firm still needed to find a focus for growth, a view echoed by Jackson Wong of Huarong International Securities.

“Sometimes it might be in the US, sometimes it might be in Europe, or sometimes they might think (it’s) Asia, though none of these places is a consistent place that any bank has had a good grip,” Wong said, adding that US interest rises could impact the Asia market and its growth potential.

Gulliver said the bank had strengthened its compliance systems and ability to manage crime risk in the wake of a range of prosecutions and fines.

In December, US authorities lifted the threat of prosecution against HSBC, five years after it admitted to widespread money laundering and sanctions violations.

In a landmark case, the bank agreed to pay $1.9 billion in fines in 2012, after admitting it knowingly moved hundreds of millions of dollars for Mexican drug cartels and illegally served clients in Iran, Myanmar, Libya, Sudan and Cuba in violation of US sanctions.

Under the terms of the settlement, federal prosecutors agreed to drop all charges after five years if the bank paid the fine, took remedial action and avoided committing new violations.

Gulliver described the lifting of the threat of prosecution by the US as an “important milestone”.

But last month HSBC agreed to pay more than $100 million to US authorities in another case, after admitting to defrauding clients during multi-billion-dollar foreign exchange transactions.