HSBC Q3 earnings recorded a $1.7billion loss from the sale of its operations in Brazil. HSBC profits (pre-tax) slumped by 86 percent at $10.6 billion, compared with $19.7 billion a year ago.
HSBC’s $843million quarterly profit fell below analysts’ expectations of $2.45billion. The bank’s profit went down from $6billion in the same period a year ago. HSBC profits were knocked largely by the sale of Brazilian unit. The bank also took a $500 hit for compensation payments for UK customers arising from payment protection insurance misselling.
Britain’s largest bank has operations over 70 countries and is headquartered in London. It had warned that it would take a loss due to the sale of its Brazilian unit. The sale was a part of the strategy by HSBC CEO Stuart Gulliver to cut costs and focus towards Asian markets.
In July 2015, he announced an overhaul which also included 25,000 job cuts globally. This included 8,000 job cuts in the UK. In September 2016, the bank’s workforce was at 234,681 – down 1,378 from December.
The sale of HSBC’s Brazilian unit has helped the British bank to announce its first share buyback of $2.5billion. Financial analysts are now focusing on the bank’s ability to pay dividends after it jilted a pledge to keep increasing the payouts. Amidst all the losses, HSBC has reported a rise in its core capital ratio to 13.9 percent. It arises from a change in the regulatory treatment of its investment in China’s Bank of Communications.
After a 10-month review, the bank announced in February to keep its headquarters in London, instead of moving to Hong Kong. Chief Gulliver, however, says HSBC could shift 1,000 to Paris post-Brexit.
It emerged last week that HSBC could face trial for alleged tax fraud in France over the illicit activities of its Swiss subsidiary. According to a leading business magazine, HSBC’s Swiss arm helped the wealthy evade taxes.
Additionally, the economic conditions will get worse at Britain formally begins the process of leaving the EU. HSBC has experienced limited impact on its British business. So far, it has experienced a trifling plunge in small business loan demand.
A decline in HSBC profits in Q4 would combine with dividend as well as bank tax payments that will cut the increase in capital in the near term.