HSBC reported a better than expected 32 per cent rise in pre-tax profit for the third quarter, with a drop in fines for past misconduct countering the impact of a slowdown in Asia and a jump in spending on regulatory compliance.
Costs related to fines and compensation for customers fell by $1.4 billion (£907 million) from the third quarter of last year, marking its progress on conduct issues that have marred recent quarterly earnings reports.
Yet the London-based lender continues to grapple with declining revenue and also reported that it spent $2.2 billion on regulation and compliance in the first nine months of the year, up 33 per cent year-on-year, even as the British government looks to take a more accommodative stance towards the industry.
Underlying revenue fell four per cent to $15.1 billion compared with the same quarter last year, as plunging stock markets and slowing economic growth hit its business in Asia.
“HSBC management has done a very good job of trying to correct its internal problems, but these results show no bank can improve revenues if the global economy is against it,” said Jim Antos, analyst at Mizuho Securities Asia in Hong Kong.
The bank reported a profit of $6.1 billion for the three months to the end of September 30, up from $4.6 billion. That was more than the consensus estimate of $5.2 billion, based on the average of analysts’ forecasts compiled by the bank.
Adjusted profit for the quarter fell 14 per cent from a year ago to $5.5 billion, taking into account the lower fines and a gain from the sale of its stake in Industrial Bank.
HSBC’s shares are down 17 per cent this year – hurt by concerns about slowing Asian growth – compared with a two per cent rise for the European banking sector.
HSBC said there had been “no visible impact” on credit quality in Asia, with losses from bad loans coming in lower than analysts had expected.
The earnings update gave investors a first chance to check on progress on the 10 goals HSBC management had set in June, including a 25 per cent reduction to risk-weighted assets, the sale of operations in Turkey and Brazil and $4.5 billion to $5 billion in cost cuts. HSBC said it was nearly 30 per cent of the way towards completing the reduction in its assets and achieved $400 million of cost savings in the quarter.
That helped the bank somewhat improve its common equity capital ratio to 11.8 per cent at the end of September, from 11.6 per cent three months earlier.
Perhaps the most-watched of the 10 goals by investors is the bank’s strategic review into whether it should move its headquarters out of Britain, with Hong Kong viewed as the most likely destination.
HSBC said it had made progress on this but the decision could slip beyond its original year-end deadline and in this way echoing comments made by chief executive Stuart Gulliver in October.