HSBC Profit Rises 30% on Cost Cuts as Forex Trades Probed

HSBC Holdings Plc, Europe’s largest bank by value, said third-quarter pretax profit rose 30 percent as the lender cut costs and focused on its most lucrative markets.

Pretax profit climbed to $4.53 billion from $3.48 billion in the year-earlier period, the London-based lender said in a statement today. That missed the $5.54 billion median estimate of 10 analysts surveyed by Bloomberg.

HSBC also said it’s being investigated by regulators, along with other firms, with regard to trading in the foreign-exchange market. 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 Chief Executive Officer Stuart Gulliver.

“In a subdued revenue environment, management continues to take out costs,” Bernstein analysts including Chirantan Barua said in an e-mailed note after the results.

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 less than 1 percent to $15.59 billion.

HSBC shares rose 15.7 pence, or 2.3 percent, to 703 pence in London. They have gained 8.7 percent this year, trailing the 18 percent advance for the 44-member Bloomberg Europe Banks and Financial Services Index.

Taking Charges

Gulliver said in May that he will 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 arm and slower growth in China. Pretax profit in Hong Kong rose 16 percent to $2.07 billion in the quarter, boosted by a “stabilizing” Chinese economy, HSBC said today.

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 analysts’ estimates, and the earnings were positive otherwise, Ian Gordon, an analyst at Investec in London, wrote in a note to clients today.

Hong Kong

Hong Kong was “a stand-out performer” in the quarter, Gordon wrote.

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 today. Foreign exchange accounts for the most revenue in the bank’s global markets business, generating $660 million in the quarter.

U.K. and Swiss regulators are probing 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 today.

Investment Bank

Pretax profit at HSBC’s investment-bank, led by Samir Assaf, fell to $1.85 billion from $2.25 billion, 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, 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 lower revenue as growth slowed in its corporate banking business.

Gulliver said today 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.

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