HSBC profits rise as costs cut and lucrative market push pays off

HSBC Holdings Plc, Europe’s largest bank by value, said third-quarter pretax profit rose 30% as the lender cut costs and focused on its most lucrative markets.

Pretax profit climbed to $4.53 billion (€3.35bn) from $3.48bn in the year-earlier period, the London-based lender said in a statement.

HSBC also said it’s being investigated by regulators, along with other firms, with regard to trading in the foreign-exchange market.

Costs as a proportion of revenue, excluding gains and losses in the value of the bank’s own debt, fell to 61% from 64%, approaching the goal of 55% set by chief executive Stuart Gulliver.

Revenue, excluding sales from businesses the bank has sold or bought and swings in currency valuations and the value of the bank’s debt, slipped less than 1% to $15.59bn.

Gulliver said in May that he would cut an additional $3bn of expenses after beating an earlier target. He has closed or sold 60 businesses and eliminated 46,000 jobs since the start of 2011.

The bank has struggled to boost revenue crimped by the sovereign-debt crisis in Europe, the winding down of its US consumer-finance arm and slower growth in China.

Pretax profit in Hong Kong rose 16% to $2.07bn in the quarter, boosted by a “stabilising” Chinese economy, HSBC said yesterday.

The lender booked a $428m charge to repay customers wrongly sold loan insurance, hedging products and wealth advice, as well as a $575m revaluation of the bank’s debt.

That contributed to the company missing analysts’ estimates, and the earnings were positive otherwise, Ian Gordon, an analyst at Investec in London, wrote in a note to clients yesterday.

Hong Kong was “a stand-out performer” in the quarter, Gordon wrote.

British lenders have been taking charges over the payment-protection insurance mis-selling and other scandals for the past year. HSBC set aside $147m in the quarter for consumers sold loan insurance they either didn’t want, need or understand, $132m for businesses wrongly sold interest-rate hedging products and $149 million to investigate sales practices in its British wealth business.

HSBC hasn’t suspended anyone over probes into foreign-exchange manipulation, Gulliver said on a conference call.

Foreign exchange accounts for the most revenue in the bank’s global markets business, generating $660 million in the quarter.

Pretax profit at HSBC’s investment-bank, led by Samir Assaf, fell to $1.85 billion from $2.25 billion, hurt by its corporate fixed-income business.

Weaker bond trading has hurt banks including Barclays, which said last week that revenue from fixed income, currencies and commodities dropped 44% to £940 million, the lowest since 2011.

— Bloomberg

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