By Jill Treanor
HSBC’s profits fell almost 50% in the first nine months of the year when Britain’s biggest bank was knocked by losses on the sale of its operations in Brazil.
The $10.6bn of pre-tax profits – compared with $19.7bn a year ago – also included a $500m hit for compensation payments for customers in the UK, largely the result of payment protection insurance misselling.
The bank, which has operations in 71 countries and is headquartered in London, had warned that it would take a loss for the sale of its business in Brazil which was part of a strategy by chief executive Stuart Gulliver to cut costs. In July 2015 he announced an overhaul which included 25,000 job cuts around the world – including up to 8,000 in the UK – as he focused the bank towards Asian markets.
At the end of September, the bank employed 234,681 – down 1,378 from December.
In the third quarter, the $1.7bn loss on the sale of the Brazilian business helped reduced profits to $843m from $6bn in the same period a year ago.
The much-anticipated sale of that Brazilian bank allowed HSBC to announce its first share buyback of $2.5bn at the time of the half year results. Analysts are focused on the bank’s ability to pay dividends after it abandoned a pledge to keep incresaing the payouts. A change in the way regulators treat its investment in its Chinese business – Bank of Communications (BoCom) – was regarded as helping its capital position.
Analysts at Bernstein said: “We feel this should be enough to allow the bank to maintain the dividend next year out of capital even as earnings decline.”
Gulliver – who is expected to leave once a replacement is found for chairman Douglas Flint – highlighted the bank’s ability to pay dividends as a result of the rise in its financial strength caused by the change in the regulatory treatment of BoCom.
“This is another action forming part of our ongoing capital management of the group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buy-backs, as appropriate. It also provides us with a significant capacity to manage the continuing uncertain regulatory environment,”said Gulliver.
The bank decided after a 10-month review in February to keep its headquarters in London rather than moving to Hong Kong. But Gulliver said that HSBC could move 1,000 jobs to Paris if Britain voted for Brexit.
Last week it emerged HSBC could face trial for alleged tax fraud in France over the activities of its Swiss subsidiary. The Guardian and other publications exposed the last year how HSBC’s Swiss banking arm helped wealthy customers dodge taxes.
The PPI scandal – where customers were sold insurance they did not need alongisde loans – has already topped £40bn even before the extra provision from HSBC.