HSBC Holdings Plc (HSBA), Europe’s largest bank, posted full-year profit that missed analyst estimates as a cost-cutting drive fell short of targets and revenue shrank. The stock tumbled.
Pretax profit for 2013 rose 9 percent to $22.6 billion from $20.7 billion in the year-earlier period, the London-based bank said in a statement today. That was lower than the $24.6 billion median estimate of 30 analysts surveyed by Bloomberg.
The bank, which gets most of its profit from Asia, is focusing on the most lucrative markets amid increased regulation and compliance costs. While Chief Executive Officer Stuart Gulliver has closed or sold 63 businesses since 2011, costs are running above his target of about 50 percent of revenue, while return on equity, a measure of profitability, is still short of his goal.
“The miss is driven by revenue softness and costs not falling as much as expected,” said Ian Gordon, an analyst at Investec Plc in London with a buy recommendation on the shares. “The dividend is also below expectations.”
HSBC will pay a 19 cent dividend for the fourth quarter, bringing the total for the year to 49 cents a share, less than Gordon’s 52-cent prediction.
The shares fell as much as 5.7 percent and were down 3.3 percent at 632.4 pence as of 12:16 p.m. in London trading. The stock has lost 4.6 percent in the year to date.
Costs fell to $38.6 billion from $42.9 billion, missing the $37.9 billion average estimate of 15 analysts surveyed by the bank. Expenses as a proportion of revenue fell to 59.6 percent from 62.8 percent. That compares with Gulliver’s “mid-50s” target for 2014 to 2016.
Return on equity climbed to 9.2 percent from 8.4 percent in 2012, still short of the company’s goal of 12 percent to 15 percent.
“The group is leaner and simpler than in 2011 with strong potential for growth,” Gulliver said in the statement. “Our strong capital generation continues to support our progressive dividend policy.”
Revenue after insurance claims fell to $64.6 billion from $68.3 billion in the year-earlier period. Loan impairment charges fell to $5.85 billion from $8.31 billion on lower bad debts in North America and Europe, the bank said.
HSBC said today the recent rout in developing markets presented no “generalized threat.”
“We remain optimistic about the longer-term prospects for emerging markets,” Gulliver said. “Nevertheless, we anticipate greater volatility in 2014 and choppy markets as adjustments are made to changing economic circumstances and sentiment.” HSBC generates most of its income from emerging markets.
HSBC is exiting businesses that aren’t profitable, aren’t big enough in a given market or could harm the bank’s reputation.
The lender is planning to sell parts of its Swiss private bank and hired Campbell Lutyens & Co. to consider the sale of its direct investment unit, people familiar with the matter said earlier this month. In December, it agreed to sell its 8 percent stake in Bank of Shanghai Co. to Banco Santander SA. (SAN)
Gulliver was paid a bonus of 1.8 million pounds ($3 million) for 2013, compared with 700,000 pounds for 2012. The bonus pool for the lender’s global banking and markets investment-banking business rose to $1.33 billion from $1.27 billion.
Under EU rules, banks are banned from paying bonuses more than twice a senior employee’s salary. A total of 665 of HSBC’s senior managers, including Gulliver and Finance Director Iain Mackay, will receive a fixed pay allowance which is neither salary nor bonus to circumvent the rules. Of those, 111 will receive the allowance in shares and 554 in cash, according to the bank’s annual report.
“It’s much more complicated. I think we had a compensation plan that shareholders liked,” Gulliver said on a conference call with journalists today. “Sadly because of the EU directive we’ve had to change.”
Pretax profit at the firm’s private bank fell to $193 million, from $1 billion in 2012 as it wrote down the value of its Monaco business and an asset sale in 2012 wasn’t repeated.
Fourth-quarter revenue at the lender’s global banking and markets division fell 4 percent from a year earlier, Bernstein Research analyst Chirantan Barua estimated in a note to clients today. That compares with a 15 percent fall at Barclays Plc and a 16 percent fall at Deutsche Bank AG, according to Barua, who has an outperform rating on the bank.
Retail banking and wealth management pretax profit fell 31 percent to $6.65 billion after the bank sold some U.S. branches in 2012.
The U.K. bank levy on HSBC’s balance sheet rose to $904 million from $571 million as the rate increased. This extra cost may not have been accounted for by analysts in their estimates, HSBC’s Mackay said on the call with reporters.