Pre-Tax Profits Drop At HSBC's Private Bank; One-Off Factors Increase Decline

Tom Burroughes Group Editor London 5 August 2013

Pre-Tax Profits Drop At HSBC's Private Bank; One-Off Factors Increase Decline

The global private banking arm of HSBC reported a pre-tax profit of $108 million in the half-year to 30 June, down from $527 million a year ago, but the drop was lower when one-off factors are accounted for.

The global private banking arm of HSBC, the financial group currently in the midst of a cost-cutting programme, reported a pre-tax profit of $108 million in the half-year to 30 June, down from $527 million a year ago, although the drop was lower when one-off factors were taken into account.

On an underlying basis, excluding the gain on the sale of HSBC’s operations in Japan, pre-tax profit at the global private bank was down by $349 million due to the loss following the reclassification of its Monaco business to “held” for sale, partly offset by decreased operating businesses. (In mid-July, HSBC Private Banking Holdings (Suisse), decided keep its private banking business in Monaco after reviewing unsolicited expressions of interest.)

Revenue fell by 29 per cent, mainly caused by the loss following reclassification to “held for sale” and the sale of the Japan operation in the first half of 2012; net interest income fell as higher-yielding positions matured and opportunities for reinvestment were limited by lower prevailing yields, HSBC continued.

"The reduced profit for global private banking reflected the loss on reclassification of the Monaco business to  'held for sale'. Excluding the impact of this one-off, revenue was 4.7 per cent lower than in H2 2012," a spokesperson for the private bank told this publication. They added that if the operational risk provision taken in Q1 is taken into account the bank's performance was broadly flat compare to both the first and second halves of 2012.  

Client assets at 30 June stood at $386 billion, compared with $398 billion at the end of December last year. The bank logged net outflows of $10 billion in the six months to 30 June.

Net interest income in the six months to 30 June was $575 million from $672 million a year earlier; net fee income fell to $602 million from $625 million, the bank said in a statement today.  Net operating income was $1.137 billion, down from $1.637 billion a year earlier,

For the banking group as a whole, it logged a pre-tax profit, on a reported basis, of $14.1 billion, 10 per cent higher than in the same six months of 2012. On an underlying basis, pre-tax profit rose 47 per cent year-on-year, HSBC said. The bank had a core Tier 1 capital ratio of 12.7 per cent at the end of June.

Cuts and disposals

The UK/Hong Kong-listed banking group has been through a wide-ranging series of cost cuts and disposals to boost profitability. Since the start of 2011, it has closed or spun off a total of 54 business units and programmes, achieving cost savings of $4.1 billion, beating its original target for the end of 2013.   

HSBC has also been hit by money laundering problems and has set up a programme to tighten controls. Last year, HSBC agreed to make a total payment of $1.92 billion to settle a US criminal investigation over breaches of anti-money laundering and sanctions laws. Among the steps it has taken is the creation of a global standards programme; over the past six months, the firm has boosted resources in its regulatory and financial crime compliance units by over 1,600 people and has put all its staff on mandatory training on compliance issues, Douglas Flint, group chairman, said in a statement.

Among other changes, as reported earlier by this publication, HSBC is shuttering its UK investor visa service because very few clients using this facility were retained by the firm beyond the minimum five-year period required by government rules.

Diplomatic change

HSBC, meanwhile, has asked more than 40 diplomatic missions to close their accounts as part of a programme to reduce business risks, according to a report by the BBC.

"HSBC has been applying a rolling programme of strategic assessments to all its businesses since May 2011, and our services for Embassies are no exception. We do not comment on individual customer relationships," a spokesperson told this publication.

The Vatican's ambassadorial office in Britain is reportedly among those said to be affected.



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