Business

HSBC shares slide on earnings and bumpier road ahead

HSBC Image copyright Matt Cardy

Shares in HSBC fell nearly 3% following a surprise fourth quarter loss and predictions of a "bumpier" road ahead because of China's slowing economy.

In the final three months of last year, HSBC reported a pre-tax loss of $858m compared with a profit in the fourth quarter of 2014.

For the full-year, pre-tax profit was flat, up just 1% to $18.9bn (£13.1bn).

HBSC also confirmed that it is being investigated over its hiring practices in Asia.

Shares in Europe's largest bank fell 2.9% to 436p in mid-morning trading, hit by the unexpected loss in the fourth quarter because of write downs on the value of loans and declining income from lending.

Looking ahead, chairman Douglas Flint said: "China's slower economic growth will undoubtedly contribute to a bumpier financial environment."

Asia accounted for 83.5% of HSBC's global pre-tax profit last year.

However, Mr Flint said that he expects China "to be the largest contributor to global growth as its economy transitions to higher added value manufacturing and services and becomes more consumer driven".

The bank also said it had changed its outlook on interest rates and no longer expects the UK rate to rise in 2016, echoing Ross McEwan, chief executive of Royal Bank of Scotland, who does not forecast any move from the Bank of England until 2017.

Tough year

The lender's group chief executive, Stuart Gulliver, noted the bank had seen a tough year in 2015, but that it was continuing to focus on delivering cost cutting measures announced in June last year.

Image copyright Getty Images
Image caption In 2015, HSBC marked its 150th anniversary

"Targeted investment, prudent lending and our diversified, universal banking business model helped us achieve revenue growth in a difficult market environment, whilst also reducing risk-weighted assets," said Mr Gulliver.

Also, Mr Gulliver's pay fell by 6% to £7.3m because of higher costs, including the bank levy and write downs on bad loans, on which his pay is dependent.

Hiring investigation

The bank also disclosed that it is being investigated by the US Securities and Exchange Commission (SEC) in relation to the hiring of people referred by, or related to, government officials or employees of state-owned companies in Asia Pacific.

The SEC is already investigating JP Morgan over its employment of so-called princelings - the offspring of influential figures in the Chinese government and the country's elite. Goldman Sachs is also under investigation for its hiring practices in the region.

HSBC said: "HSBC has received various requests for information and is cooperating with the SEC's investigation.

"Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant."

The relatives of China's government officials are permitted to engage in business but are not allowed to profit from their connections.

Compliance concerns

HSBC's annual report also revealed that a monitor appointed by the US government to assess the bank's anti-money laundering and sanctions compliance programme had expressed "significant concerns" about the progress of improvement.

In 2012, HSBC was fined $1.9bn for failing to stop "drug kingpins and rogue nations" from using the bank to launder money.

As part of a five-year deferred prosecution agreement, HSBC agreed to allow a monitor to track its progress on putting in place certain compliance measures.

However, the monitor, Michael Cherkasky, found instances of potential financial crime as well as systems and controls deficiencies in the last year.

Mr Cherkasky, a former New York prosecutor, also questioned whether HSBC was on track to meet its five-year target to tighten money laundering controls.

Staying in London

HSBC recently announced that the bank would keep its headquarters in the UK, where they have based since 1993.

After a ten-month long investigation, HSBC said it had decided unanimously against the move and that London offered "the best outcome" for its shareholders and customers.

Mr Gulliver insisted that the bank would not review the location of its headquarters if Britain voted to leave the EU.

He added that if there was an exit, he only expected it to affect its 5,000-person global banking and markets business in the UK and forecast that 1,000 staff with roles linked to European financial legislation would have to move to Paris.

HSBC is understood to have paid about £30m to advisors to help it reach the decision, which was was seen as a vote of confidence for the UK.

However, some analysts said the decision to stay in London was not a good one because it meant HSBC would face tighter regulations together with the cost of the UK bank levy.


More about HSBC

Image copyright Getty Images

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HSBC chairman Douglas Flint on the banking giant's decision to keep its headquarters in London.

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London-listed shares in HSBC have fallen 16% in the year-to-date and more than 25% over the last 12 months.

Last year, the bank announced thousands of job cuts, along with asset sales, as part of a major cost-cutting plan.

The lender has a global network of more than 6,000 offices in 72 countries and territories and serves some 48 million customers, according to its website.

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