HSBC Holdings beat expectations with a 10 per cent rise in first-half profit yesterday, driven by a strong performance in Hong Kong, and said it had agreed the sale of its unprofitable Brazilian unit.
It said it had agreed to sell Banco Bradesco SA, Brazil’s second-biggest private-sector bank, for a higher-than-expected 17.6 billion reais ($5.2 billion), as it seeks to cut under-performing businesses.
Europe’s biggest bank said pretax profits in the first six months of the year were $13.6 billion (£8.70 billion), up from $12.3 billion a year earlier and well above analysts’ average forecast of $12.5 billion according to a poll conducted by the bank.
Profits were driven by an investing frenzy in Hong Kong among individual customers amid China’s soaring markets earlier in the year, the bank said. HSBC has become increasingly reliant on Hong Kong for profits as its businesses in Europe, the United States and other emerging markets slow, and has said it is considering moving its headquarters back to the former British colony.
The market turmoil in China in recent weeks, however, could mean a gloomier outlook for the second half for HSBC.
The bank said its performance in July was “satisfactory”, but chairman Douglas Flint said the banking environment remained “challenging” and the economic environment was particularly uncertain in China and the eurozone.
China’s stock markets have been a boon for the lender, driving profits for the bank’s broking business in Hong Kong via the Stock Connect trading link with Shanghai as mainland shares soared before their June crash.
“HSBC’s wealth management revenues in Hong Kong from equities, mutual funds and asset management increased significantly,” Flint said.
Ian Gordon, analyst at Investec Securities in London, said the bank was unlikely to maintain that growth in the next few quarters.
“The bank’s profits benefited from the boost from Stock Connect before the market turned, so I wouldn’t extrapolate the same level of performance into the third quarter and beyond,” he said.
Asia now accounts for two-thirds of HSBC’s profits, and chief executive Stuart Gulliver has pinned the lender’s fortunes on a ‘pivot’ to the region and its fast-growing economies.
HSBC is speeding up a cull of unprofitable units and countries by cutting almost 50,000 jobs – half of them from selling businesses in Brazil and Turkey.
It is close to selling its loss-making Turkish business to Dutch lender ING Group for around $700-$750 million, sources have told Reuters.
HSBC also said it had increased to $1.3 billion from $550 million the sum set aside to cover costs from various regulatory probes into banks’ rigging of foreign exchange markets worldwide.
The lender’s shares were unchanged in Hong Kong early yesterday afternoon, against a one per cent drop in the city’s benchmark Hang Seng index. HSBC said its investment bank had a good start to the year, led by growth in equities and a 21 per cent rise in foreign-exchange trading revenues.
Gulliver said the bank had cut assets by $50 billion on a risk-adjusted basis in the first half of the year, mostly in the investment bank, as part of its plan to shrink the business. It said $30 billion of assets were redeployed in higher returning areas. That helped lift its core capital ratio to 11.6 per cent from 11.1 per cent a year ago, which analysts said could help lift its future dividend payouts.
Cutting costs remains a challenge, and costs rose seven per cent from a year ago, which the bank said was due to high regulatory and compliance costs and spending to grow revenues.