Adjusted pre-tax profit rose at the private banking arm of HSBC.

UK/Hong Kong-listed HSBC today reported a rise in pre-tax profit and profit attributable to shareholders for 2018. Pre-tax profit came in at $19.89 billion, up from $17.167 billion a year earlier, with attributable profit to ordinary shareholders rising to $12.608 billion from $9.683 billion.

The pre-tax profit was lower than expected, according to Reuters. Investors, concerned that weakening Chinese growth – a powerful driver of earnings for a bank making much of its profit from the region - sent shares down. As of mid-morning today in London, shares were down by 4 per cent at 637 pence per share.

"Getting a grip on the group’s costs is another area of concern and the bank suffered over the final quarter when clients held off doing business over the period due to more challenging market conditions and a weaker economic outlook, meaning its target of a rise in income to be greater than a rise in costs was missed," Graham Spooner, investment analyst at The Share Centre, said.
 
"The bank has moved its focus increasingly towards Asia in recent years and makes the majority of its profits from the region. The comparatively new CEO and his pivot to Asia plan hopes to benefit on the faster potential growth," Spooner added.

For the private banking arm, adjusted pre-tax profit rose by 1.6 per cent on the year to $344 million, the group said in a statement today. This division’s adjusted cost/efficiency ratio was 81.2 per cent, down slightly from a year before.

When adjusted by region, Asia took the lion’s share of adjusted pre-tax profit, at $17.79 billion, while the Middle East and North Africa made up $1.557 billion, North America $799 million, Latin America $559 million, and Europe made a loss of $815 million.

The bank said that its global private banking arm “returned to growth in 2018 on the back of new business won in Hong Kong. Adjusted revenue from deposits also increased on the back of interest rate rises”.

As for retail banking and wealth management, these areas “had a very good year. Higher interest rates, rising customer numbers”, it said. Wealth management adjusted revenue was affected by the weaker equity markets last year.

HSBC said it has set aside $626 million for potential fines and costs linked to a variety of tax, regulatory and administration cases it faces. 

“There are many factors that may affect the range of outcomes, and the resulting financial impact of these investigations and reviews. Based on the information currently available, management’s estimate of the possible aggregate penalties that might arise as a result of the matters in respect of which it is practicable to form estimates is up to or exceeding $800 million, including amounts for which a provision has been recognised. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from this amount,” it said. 

“Various tax administration, regulatory and law enforcement authorities around the world, including in the US, Belgium, Argentina, India and Spain, are conducting investigations and reviews of HSBC Private Bank (Suisse) SA and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.”