HSBC tackles costs as profits fall

HSBC’s new boss set the scene for an assault on the group’s costs today after the banking giant unveiled a 14% drop in first quarter profits.

A bill of $440m to cover payment protection insurance compensation, as well as weaker trading in Europe and the United States, sent pre-tax profits down to $4.91bn in the quarter to end March, from $5.71bn this time last year.

Stuart Gulliver is due to unveil a major strategy review on Wednesday, which is expected to include some disposals and a crackdown on HSBC’s cost base.

It has been reported that branch closures are among options being looked at, as well as potential job cuts among middle management.

The bank’s cost ratio rose to 60.9% in the latest quarter but this included the PPI provision and other one-off items.

Without the restructuring charges, the cost ratio was 55.1%, largely flat over the quarter, but still above Mr Gulliver’s target of 52%.

“It will take two to three years to sort out the cost efficiency problems of the group,” he warned.

Underlying profits fell to $5.5bn from $6.1bn, even though the figures were boosted by impairment charges falling 37% to a five-year low of $2.4bn.

Profits improved in wealth management and retail banking, but staff costs rose in its fast growing emerging markets in the Far East while global banking and markets profits were lower.

In Europe, lower trading activity and the PPI charge sent profits tumbling 65% from $1.86bn to $652m, while US profits fell by 60%.

HSBC said it accepted the decision of the British Banking Association to drop its legal action on PPI because the bank was the “least affected and had little chance of winning on appeal,” he said.

HSBC’s provision is much lower than the £3.2 billion set side by Lloyds last week and the £1 billion earmarked by Barclays. Mr Gulliver said that was because it stopped writing PPI business in 2007 rather than any indication it will be tough on claimants.