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HSBC, Standard Chartered Profit Seen Up on Asset Sales, Revenue

HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN), Britain’s two largest banks by value, may post increased profit for 2012 after asset sales and revenue growth mitigated settlements for anti-money laundering and sanction failures.

HSBC’s pretax profit will rise 7.4 percent to $23.5 billion when Europe’s biggest bank reports earnings on March 4, according to the median estimate of 26 analysts surveyed by Bloomberg. Standard Chartered may say pretax profit climbed to $7.12 billion from $6.78 billion, according to the median estimate of 33 analysts.

Stuart Gulliver has closed or sold 46 businesses to increase profitability since he became HSBC chief executive officer in 2011. That may add about $8 billion to profit for 2012, helping offset the $1.92 billion paid to settle U.S. money laundering probes in December, Amit Goel, an analyst at Credit Suisse, wrote in a Feb. 22 note to clients. Standard Chartered, which like London-based HSBC focuses on emerging markets, may post a 7.2 percent increase in revenue led by corporate banking, wrote Goel. It agreed last year to pay regulators $667 million after they alleged it violated U.S. sanctions with Iran.

“HSBC gets a one-off gain from disposing of these business, but you lose earnings further down the line,” said Gary Greenwood, a banking analyst Shore Capital Ltd. in Liverpool who rates Standard Chartered a buy and HSBC a hold. Standard Chartered’s profit “will come from continued strong top-line growth,” he said.

Gulliver Retreat

Gulliver is retreating from certain markets and sacrificing revenue after pledging in 2011 to increase return on equity, a measure of profitability, to at least 12 percent. He’s earmarked 30,000 job cuts to help eliminate $2.5 billion to $3.5 billion of expenses. Revenue fell about 5 percent to $68.6 billion in 2012, according to the analyst survey. It rose 8.4 percent to $19.12 billion at smaller competitor Standard Chartered, analysts predicted.

HSBC completed the sale of its U.S. credit card unit to Capital One Financial Corp. for a premium of $2.5 billion in May and this month sold its stake in Shenzhen, China-based Ping An Insurance (Group) Co. for about $9.4 billion.

HSBC’s 2013 earnings will be diluted 12 percent from those disposals, while it will receive an increase in its core Tier 1 capital ratio, a measure of financial strength, of 110 basis points, estimates Greenwood. One basis point is 0.01 percentage point.

U.S. Settlements

The lender also agreed in May to sell four units in Latin America for about $400 million in cash to Colombia’s Banco GNB Sudameris SA and said this month it would sell its Panama unit for $2.1 billion.

HSBC on Dec. 11 agreed to settle U.S. probes of money laundering in the largest such accord, topping the $619 million in penalties paid in June by the Netherlands’s ING Groep NV. (INGA) The bank made an $800 million provision in the third quarter to cover a potential settlement, adding to $700 million it had already earmarked.

Standard Chartered agreed to pay $667 million to U.S. regulators after they alleged it violated U.S. sanctions with Iran, making its final settlement in December. The lender in August was accused by Benjamin Lawsky, head of the New York Department of Financial Services, of helping Iran launder about $250 billion in violation of federal laws, keeping false records and handling lucrative wire transfers for Iranian clients.

The fines for both banks “in the grand scheme are absorbable,” said Vivek Raja, an analyst at Oriel Securities Ltd. in London. “It would now be nice to get a steer on a return-on-equity target from HSBC, particularly in light of recent earnings-dilutive business exits,” he said.

Shares Gain

HSBC has climbed 14 percent in London trading this year, giving the company a market value of 137 billion pounds ($208 billion), while Standard Chartered has gained 14 percent for a value of 43.4 billion pounds. The six-member FTSE 350 Banks Index (F3BANKS) rose 14 percent in the same period.

Standard Chartered, which gets most of its profit in Asia, is expected to report full-year revenue growth in the “high single digits,” it said in a Dec. 6 market update. Finance Director Richard Meddings said Oct. 30 that the bank might miss its earlier growth target of at least 10 percent. Full-year revenue in markets including Africa, Malaysia, China and Indonesia may grow 10 percent or more, the bank said.

Standard Chartered’s investors will want to see signs of a turnaround in India and Korea, Oriel’s Raja said. Consumer banking operations in Korea were “muted,” Standard Chartered said in October. Corporate loan growth will be “slow” in India in 2013 with “single-digit” borrowing growth compared with 21 percent in 2012, Shore Capital’s Goel wrote.

HSBC reports earnings at 8:15 a.m. London time on March 4, while Standard Chartered publishes results at 8:15 a.m. on March 5. Officials for both banks declined to comment.

-- Editors: Jon Menon, Steve Bailey

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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