HSBC profits hit £7bn as flak flies over lending and bonuses
HSBC has kicked off what is set to be another contentious banking reporting season by unveiling a doubling of profits to £7bn from £3.27bn a year ago.
The bank reported the soaring earnings at a time of continuing controversy over bonuses and lending to small businesses.
Over the weekend Chancellor George Osborne called on banks to do more, while calls for pay restraint have come from the Financial Services Authority, politicians and the Bank of England.
HSBC's booming profits were primarily driven by a sharp fall in bad loans, with provisions falling by £4bn to £4.72bn in the first half of the year. Its revenues actually fell slightly, by 3.8% to £12.4bn.
But all the bank's regions and business segments made money, with the exception of the US, which lost £50.3m as HSBC continues the run-off of its disastrous foray into sub-prime lending.
Personal financial services — the retail business — showed a marked improvement, turning a £0.7bn loss into a £0.73bn profit.
The bank's Hong Kong-based chief executive, Michael Geoghegan, said emerging markets in Asia would continue to be crucial to the growth of the operation and would remain its chief focus. But he warned that overall the outlook remained “uncertain”. “Whether the West can sustain growth will remain unclear for some time,” he said.
The banking sector's critics argue that sustaining growth in the West will in part depend on banks' willingness to lend to businesses, but HSBC, which currently lends only just over 80% of what it has on deposit, said it was keen to advance money to “viable businesses” and consumers. However, it said, many of its customers were concentrating on paying money back.
While HSBC's new lending to small and medium-sized businesses (SMEs) in Britain grew by 38% to £1.4bn when compared to the first half of last year, net new loans fell. But the bank denied this was because its terms were unaffordable.
It argued that low interest rates meant the rates being paid by SME customers were often lower than before the financial crisis and, even where credit was being made available, businesses were focusing on paying loans back.
It's an argument the British Bankers' Association (BBA) backs. “Many larger companies are going direct to the markets for funding and, as is common in the downturn, smaller businesses repay borrowing and will finance through other money such as personal savings or the business's ongoing capital,” said Angela Knight, chief executive of the BBA.
The global banking and markets division at HSBC slowed slightly, with profits down 13% to £3.5bn, in common with investment banks around the world. However, the bank said this was still a good result and the last six months represented the division's “second best ever” performance.
Despite the fall in profit, the cost of paying bankers at the division increased to £1.57bn against £1.56bn in the first half of last year. Stuart Gulliver, head of global banking and markets, put that down to the bank paying the previous government's bonus tax during the first half of this year.
Mr Geoghegan also reiterated the bank's commitment to its London base despite continued speculation that it plans to move its headquarters to Hong Kong.
But he expressed annoyance at continued questions over the bank's pay policies and its attempt to sharply increase the salaries of its top executives.