HSBC profit doubles to $6.76 billion

HSBC, Europe’s biggest bank, reported a first-half profit leap to $6.76 billion yesterday, saying it had slashed bad debts in the United States and raised earnings in emerging markets.

The net profit of $6.76 billion (€5.17 billion) for the six months to June 30 was more than double the equivalent figure of $3.34 billion last year.

“As we focus on building a high quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis,” HSBC chief executive Michael Geoghegan said in the earnings release.

“They almost halved overall, reducing by $6.8 billion to $7.5 billion year-on-year.

“This reflects the benefit of more stable economic conditions for many of our customers and follows our actions, begun before the crisis, to reduce exposure to unsecured lending outside our key relationships, to exit unprofitable business lines and to tighten underwriting standards for new business,” Mr Geoghegan added.

In remarks in Hong Kong, where he is based, he said that emerging markets and mainland China would continue to be the bank’s priority for investments.

“US will remain weak for some time and hence HSBC will continue to focus on the emerging markets,” he told a press conference.

Peter Wong, the bank’s chief executive for the Asia-Pacific region, said they were confident that China would continue to be the key driver of economic growth for a long time, despite concerns that its growth would slow down.

“We don’t see a huge deterioration of trade flow (in China),” Mr Wong said. He added that the bank’s GDP growth forecast for China was 10 per cent this year and 8.5-9 per cent for 2011.

In North America, HSBC posted pre-tax profit of $492 million compared to losses totalling $3.7 billion in the first half of 2009.

It was the first time for three years that the North American unit had reported a first-half profit. However, on an underlying basis, the result was a loss of $80 million.

“It is an encouraging sign of progress in the US that (on an underlying basis) performance in North America was ahead by some $2 billion, resulting in a significantly reduced pre-tax loss of $80 million. Loan impairment charges fell markedly,” HSBC said.

It added that across the group, pre-tax profits more than doubled to $11.1 billion in the first half, comfortably beating analyst expectations of earnings totalling $9.3 billion.

“Despite increasing economic uncertainty towards the end of the period, we saw appetite for credit grow steadily, especially among our business customers,” Mr Geoghegan said.

“We grew loans and advances to customers in all regions and by four per cent overall, compared with the end of 2009. Geographically, the strongest growth was in Asia, where we grew lending by 15 per cent.”

HSBC, founded in Hong Kong and Shanghai in 1865, sees Asia as its most important region strategically. Earlier this year Mr Geoghegan relocated to Hong Kong from London, although the group remains headquartered in the British capital.

The bank said on Monday that across Asia, pre-tax profits increased by 20 per cent to $5.6 billion in the first half.

“The contribution of Asian profits generated outside Hong Kong grew to 50 per cent, underlining our growing presence across the region,” Mr Geoghegan said.

Pre-tax profits in Latin America increased by 36 per cent to $900 million. Earnings dropped 39 per cent to $393 million in the Middle East but “were well ahead of the second half of 2009”, said HSBC.

The price of shares in HSBC showed a gain of five per cent to 679 pence. London’s benchmark FTSE 100 index was up nearly two percent.

HSBC had added that it was to pay an interim dividend of 16 cents per share.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said HSBC had kicked off British banking’s earnings season in “some style”. He added: “The company has been in the thick of the action since day one (of the financial crisis), being one of the first to highlight the sub-prime meltdown.

“Although the bank inevitably suffered throughout the crisis, it maintained its dividend and was bolstered by its significant Asian exposure. Today’s numbers underline the overall strength of the bank, while the dramatic reduction in the loan impairment provision is an additional bonus.”