HSBC Reports Declining Full Year Profits

HSBC Holdings Plc

HSBC Holdings Plc

On the 4th of March, HSBC Holdings reported a fall in its full year preliminary profit for the year ended December 2012. The bank cited debt revaluation and the US related money-laundering fine as some of the major determinants which led to declining profits.

HSBC Missed Profit Estimates

HSBC Holdings PLC posted lower-than-expected full year profits driven by robust regulatory charges and hefty money laundering fines. According to a statement released by HSBC Holdings PLC, pre-tax profits fell by slightly more than 5.8 percent to $20.6 billion. The company was expected to post full year profits worth approximately $23.4 billion. Moreover, revenue for the period decreased by nearly 5.5 percent to $68.3 billion, from $72.2 a year earlier. Also, net profit for the year 2012 declined to roughly $13.4 billion, compared to about $16.2 billion in 2011. In the face of heavy regulatory charges, HSBC Holdings PLC fell short of profit estimates and performance targets set by itself.

Despite declining full year profits, HSBC Holdings PLC witnessed an increase in its underlying profits by around 18 percent to nearly $16.4 billion. Moreover, underlying revenue, the actual revenue realized by the bank, rose by approximately 7 percent to nearly $63.5 billion for the year ended December 2012. The increase in sales included a 10 percent rise in global marketing which contributed to $18.2 billion of the revenues. In the face of rising creditworthiness of the bank, HSBC CEO Stuart Gulliver underlined that: “HSBC made significant progress in 2012. First and foremost, we grew our business. We increased revenues, performed well in most faster-growing markets and enjoyed a record year in Commercial banking.

HSBC Hit by Fine Costs

On the 11th of December, HSBC Holdings PLC decided to pay as much as $1.9 billion to close the offending and disconcerting American criminal probe into money-laundering allegations. The bank blames the hefty regulatory charge for poor profits, including a $500-million charge spent for revising its systems in order to check laundering on a regular basis. In the third quarter of 2012, HSBC had set aside as much as $800 million as a provision against a key settlement. Since Stuart Gulliver was named the Chief Executive Officer of HSBC Holdings PLC, he has taken radical steps to incur savings. The bank withdrew from 47 businesses which enhanced the annual profits. Moreover, HSBC informed that it is planning to sell its Panama unit for an estimated price of $2.1 billion.

The bank plans to reduce costs by $3.6 billion and downsize its workforce by eliminating 30,000 jobs worldwide. Europe’s biggest bank, which operates in 80 different countries with over 60 million customers, anticipated a $5.2 billion charge against debt revaluation adjustments. According to the result statement, HSBC Holdings PLC would increase dividend by 10 percent to approximately $8.2 billion or 45 cents per share. In addition, return on equity dropped to nearly 8.9 percent, from 10.5 percent a year earlier. Following the announcement of declining profits, shares of HSBC Holdings PLC dipped nearly 2.6 percent to 709 pence at London Stock Exchange.

Jay Raol

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