HSBC Holdings Plc, Europe’s biggest bank, said first-half net income doubled as the North American unit returned to profit for the first time in three years and as bad-debt provisions fell by 46 percent.
Profit rose to $6.76 billion in the six months to the end of June from $3.35 billion in the year-earlier period. Pretax profit of $11.1 billion beat the $8.8 billion median estimate of 10 analysts surveyed by Bloomberg. The shares gained in London trading.
“HSBC has opened the bank earnings season in some style,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers in London. “The big positive from today’s results is the loan provision figures, which have dropped very significantly.”
HSBC last year closed its U.S. consumer finance division to new customers and sold assets to curtail bad loans which have made the unit unprofitable since the first half of 2007. The bank set aside more than $61 billion of provisions in North America following its acquisition of subprime lender Household International in 2003.
Pretax profit in North America was $492 million, compared with a loss of $3.7 billion a year ago, as bad-loan charges declined to $4.6 billion from $8.5 billion.
“As we focus on building a high quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis,” said Chief Executive Officer Michael Geoghegan in the statement.
HSBC is the first of the U.K. banks to report earnings for the period. BNP Paribas SA, France’s biggest bank, today said second quarter profit rose 31 percent as bad loans declined.
The 54-member Bloomberg Europe Banks and Financial Services Index gained 3.7 percent at 4:35 p.m. London time, its highest in more than 15 weeks. HSBC gained 5.3 percent to 680 pence at the close of London trading, the highest in 14 weeks.
Pretax profit in Hong Kong and Asia Pacific rose 30 percent to $5.86 billion, while in Europe it rose 18 percent to $3.5 billion. The bank made a profit of $1.17 billion at its consumer banking division from a loss of $1.25 billion. Total bad debt provisions declined to $7.5 billion from $13.9 billion. The bank made a $1.1 billion profit on changes to the fair value of its debt, compared with a loss of $2.3 billion.
Investment banking pretax profit declined 11 percent to $5.63 billion, as revenue fell 12 percent to $10.8 billion.
HSBC’s results are “poor quality,” with lower loan losses masking revenue that missed estimates, said Andrew Lim, a London-based analyst at Matrix Corporate Capital LLP with a “sell” rating on the bank. “To merely bring forward a normalization in provisioning, which we already anticipate (albeit later), will only have a small impact on valuation,” he wrote.
Revenue from HSBC’s investment bank was the second-best ever after the “exceptional performance” in the first half of last year, HSBC Chief Financial Officer Douglas Flint said on a conference call with reporters. Profit from foreign exchange and rates were down, while there was a better performance in equities, asset structured finance and some of the transactional business and in principal investments, Flint said.
The bank hired 400 people at the investment banking unit in areas including equities and primary services, said Stuart Gulliver, head of the division, at a press conference today.
Unlike British rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, HSBC wasn’t bailed out using taxpayer funds during the financial crisis. It takes more in customer deposits than it lends, which assists its liquidity.
Geoghegan moved to Hong Kong in February, leaving Chairman Stephen Green in London, as the bank focuses on emerging markets and plans an initial public offering in Shanghai next year. Global growth is likely to remain constrained because of “anaemic growth” in western nations, Geoghegan said today in the statement, while he is “bullish” on emerging economies.
HSBC said the U.K.’s one-off 50 percent bonus tax cost about $91 million. The government imposed the levy on bonuses of more than 25,000 pounds ($38,000) on payouts awarded between Dec. 9, 2009, and April 5.
HSBC has failed to resolve some structural problems, with an inability to increase lending as the run-off of the U.S. subprime unit outstrips accelerated loan growth in Asia, wrote Ian Gordon, an analyst at Exane BNP Paribas SA, in a note to clients. This will limit future profitability, he said.
Auto Loan Sale
The bank agreed to sell the remaining $2.9 billion of U.S. auto finance loans last month, the company said in a statement today. The company has $68.8 billion of U.S. loans in “run off,” it said.
HSBC has a loan-to-deposit ratio of below 80 percent, the bank said today. Total assets increased by 2.3 percent to $2.4 trillion since the end of 2009. The bank will “aspire” to achieve a return on equity at the lower end of between 15 percent and 19 percent, Geoghegan said.
Lloyds, Northern Rock Plc, Standard Chartered Plc, Barclays and RBS report results later this week.