HSBC annual profit disappoints, plans up to US$7b capital raising

HSBC’s departing CEO Stuart Gulliver at the Paris Europlace international financial forum

HSBC annual profit disappoints, plans up to US$7b capital raising

As well as overseeing a move to Asia, Gulliver's time as chief executive has also been bedevilled by a number of investigations of the bank for breaking compliance rules, leading to substantial fines.

The bank said pretax profit, after adjusting for one-off items and currency fluctuations, increased 11 percent to $21 billion in 2017, as adjusted revenue climbed 5 percent to $51.5 billion.

The lender, which controls the compiler of the Hang Seng indexes, posted a 23.5% increase in 2017 net profit to HK$20.02 billion ($2.56 billion) as its net interest margins expanded alongside growth in its fee income.

The analysts' earnings estimates did not all take into account a $1.3 billion writedown for 2017 that HSBC took, triggered by cuts in the USA corporate tax rate which meant banks had to book losses on deferred tax assets they built up during loss-making times.

The results, complicated by a $1.3bn USA tax charge that some analysts did not include in their estimates, mark the last day as chief executive for Gulliver, who has led the bank through a turbulent seven years.

HSBC shares were down 2.2 per cent in afternoon Hong Kong trading after the results announcement.

While the overall results were "as firm as anticipated", Mr Wilson said there were "clear signs the bank is beyond recovery phase now as Stuart Gulliver heads off on his travels".

The overhaul included laying off thousands of workers, bringing in new leadership and selling off its businesses around the globe to focus on emerging markets in Asia. He has dealt with the after-effects of rapid expansion that caused the bank to lose its grip on activities in Mexico, where it was used to launder money by drug gangs, and Switzerland, where it admitted aiding aggressive tax avoidance.

Commenting on the financial results, Mr Gulliver said: "These good results demonstrate the strength and potential of HSBC". HSBC said it plans to raise between $5 billion to $7 billion in additional tier 1 capital during the first half of 2018.

"These results and the achievements of the last couple of years give us a great platform to build on".

His replacement, chief designate John Flint, says: "The fundamentals of HSBC will remain the same as they always have - strong funding and liquidity, strong capital, and a conservative approach to credit". Adjusted operating costs rose 4% to $31.1bn, driven by investment in growth programmes and higher performance-related pay.

The bank is Europe's biggest but Asia accounted for almost nine-tenths of total profits a year ago, when HSBC completed a sweeping multiyear corporate revamp to raise profitability.

Still, "with a new and young management coming in and the global environment improving, HSBC should refocus on its underlying business growth", he said.

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