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HSBC Shares Jump to Six-Week High After Profit Rises 30%

HSBC Advertisement in Hong Kong
People ride on an escalator in front of an HSBC Holdings Plc advertisement at a tram stop in the business district of Central in Hong Kong. Photographer: Jerome Favre/Bloomberg

Nov. 5 (Bloomberg) -- HSBC Holdings Plc, Europe’s largest bank by market value, rose to a six-week high in Hong Kong stock trading after saying third-quarter pretax profit jumped 30 percent, boosted by earnings in that city and cost cuts.

Pretax profit climbed to $4.53 billion from $3.48 billion in the year-earlier period, the London-based lender said in a statement yesterday. That missed the $5.54 billion median estimate of 10 analysts surveyed by Bloomberg. Pretax profit in Hong Kong rose 16 percent to $2.07 billion from a year ago.

While HSBC said it’s among firms being investigated by regulators with regard to trading in the foreign-exchange market, Chief Executive Officer Stuart Gulliver said the lender saw “reasons for optimism” amid a broadening economic recovery. Mizuho Securities Asia Ltd. raised its rating on HSBC to buy from neutral today.

“Management was upbeat about future prospects at the results presentation, which probably helped,” James Antos, a Hong Kong-based analyst at Mizuho, wrote in a report. “HSBC is finally, for us, on the right track, aided in part by a more benign macro environment.”

HSBC shares increased 1.4 percent in Hong Kong to HK$86.30, the highest intraday level since Sept. 23, as of 10:17 a.m. local time. The stock rose 2.3 percent to 703 pence in London yesterday, taking its gain this year to 8.7 percent. The 44-member Bloomberg Europe Banks and Financial Services Index advanced 18 percent in that period.

Cost Cuts

Costs as a proportion of revenue, excluding gains and losses in the value of the bank’s own debt, fell to 61 percent from 64 percent, approaching the goal of about 55 percent set by Gulliver.

Revenue, excluding sales from businesses the bank has sold or bought and swings in currency valuations and the value of the bank’s debt, slipped to $15.59 billion in the third quarter from $15.66 billion a year earlier.

“In a subdued revenue environment, management continues to take out costs,” Sanford C. Bernstein Ltd. analysts including Chirantan Barua wrote in a note after the results.

Gulliver plans to cut an additional $3 billion of expenses after beating an earlier target. He has closed or sold 60 businesses and eliminated 46,000 jobs since the start of 2011.

The bank has struggled to boost revenue crimped by the sovereign-debt crisis in Europe, the winding down of its U.S. consumer-finance operation and slower growth in China this year. Pretax profit in Hong Kong was boosted by a “stabilizing” economy in China, HSBC said yesterday.

Loan Insurance

The lender booked a $428 million charge to repay customers wrongly sold loan insurance, hedging products and wealth advice, as well as a $575 million revaluation of the bank’s debt. That contributed to the company missing estimates, while earnings were positive otherwise, said Ian Gordon, an analyst at Investec Plc in London with a buy recommendation on shares.

British lenders have been taking charges over the payment-protection insurance mis-selling and other scandals for the past year. HSBC set aside $147 million in the quarter for consumers sold loan insurance they either didn’t want, need or understand, $132 million for businesses wrongly sold interest-rate hedging products and $149 million to investigate sales practices in its U.K. wealth business.

HSBC hasn’t suspended anyone over probes into foreign-exchange manipulation, Gulliver said on a conference call. Foreign exchange accounts for the most revenue in the bank’s global markets business, generating $660 million in the quarter.

Currency Probe

U.K. and Swiss regulators are investigating the $5.3 trillion-a-day foreign-exchange market after Bloomberg News reported in June that dealers in the industry said they had been front-running client orders and attempting to rig benchmark rates. Banks including Barclays Plc and Citigroup Inc. have put staff on leave amid the probes.

“We are cooperating with the investigations, which are at an early stage,” HSBC said in the statement.

Pretax profit at HSBC’s investment bank, led by Samir Assaf, fell to $1.85 billion in the third quarter from $2.25 billion a year ago, hurt by its corporate fixed-income business.

Weaker bond trading has hurt banks including Barclays, which said last week that that revenue from fixed income, currencies and commodities dropped 44 percent to 940 million pounds ($1.5 billion), the lowest since 2011. The five biggest U.S. investment banks’ combined revenue from FICC trading slid 25 percent from a year ago, data compiled by Bloomberg Industries show.

Standard Chartered Plc, the other U.K. bank that gets most of its profit in Asia, last week posted a drop in third-quarter revenue, hurt by its corporate-banking units.

Gulliver said that HSBC has consulted with shareholders on the European Union’s bonus cap, which has prompted banks including Barclays to plan changes to their compensation structure. The bank will decide how it will respond to the proposed rules in “the next few months,” he said.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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