HSBC's private banking results showed a rise in global pre-tax profit, while the parent firm suffered a drop of 17 per cent.

(This article is being republished today as the results came out after the close of the Hong Kong stock market. It is also updated with the London share price movement of yesterday.)

Pre-tax profit at HSBC’s private bank, which has been on the receiving end of a media and political storm over alleged assistance to tax dodgers in Switzerland, rose 3.4 per cent year-on-year in 2014.

The UK/Hong Kong-listed banking group, which marks its 150th anniversary this year, said global private banking profits in 2014 were $626 million for the year ending 31 December, 2014.

Last year, HSBC’s private bank logged $14 billion of net new money; however, other forces at work meant that, at the end of 2014, assets under management on a reported basis were $365 billion, from $382 billion a year earlier.

The headline result for the overall banking group - a fall in pre-tax profits - did not go down well with investors. In late afternoon trade in London, shares in HSBC were down 4.6 per cent at 577.2 pence.

“On a reported basis, client assets, which include funds under management and cash deposits, decreased, mainly in Europe, due to the effect of the sale of a portfolio of clients in Switzerland, the disposal of our HSBC Trinkaus & Burkhardt business in Luxembourg and negative net new money,” the statement said of the private banking figures.

“In addition there were unfavourable foreign exchange movements, mainly in Europe. This was partly offset by favourable market movements. Negative net new money [aka outflows] of $3 billion was mainly driven by the continued repositioning of our business, though we attracted positive net new money of $14 billion in areas that we

have targeted for growth, including our home and priority growth markets and the high net worth client segment,” it said.

The last few weeks have seen the banking group hit by controversy over the Geneva-based Swiss private banking arm of HSBC. A report by the Washington DC-based International Consortium of Investigative Journalists and a separate documentary by the BBC Panorama programme described how the bank allegedly helped tax evaders via its Swiss private bank. As far back as 2006-07, a large cache of data was stolen from the bank. A former employee, Hervé Falciani, is on trial in Switzerland for the theft, which is in breach of Swiss bank secrecy rules. Prosecutors claim Falciani’s assertion of being a whistleblower are bogus.

HSBC has argued that since 2008, the number of accounts and assets under management run via that Swiss bank had fallen sharply and the bank has drastically overhauled its practices. It is understood by this publication that a number of such accounts had been closed as far back as 1993.

“Global private banking continues to undergo a comprehensive overhaul which was accelerated from 2011,” Stuart Gulliver, HSBC’s group chief executive, said in the statement today.

“As part of this overhaul, we are implementing tough financial crime, regulatory compliance and tax transparency measures. In order to achieve our desired business model and informed by our six filters process, we have also sold a number of businesses and customer portfolios, including assets in Japan, Panama and Luxembourg,” Gulliver continued.

“The number of customer accounts in our Swiss private bank is now nearly 70 per cent lower than at its peak. We continued to remodel the private bank in 2014, which included the sale of a customer portfolio in Switzerland to LGT Bank. One consequence of this remodelling was a reduction in revenue. We have also grown the parts of the business that fit our new model, attracting $14 billion of net new money in 2014, mostly through clients of global banking and markets and commercial banking.

Group results

Across the entirety of HSBC, the bank logged a profit before tax of $18.7 billion on a reported basis, $3.9 billion or 17 per cent lower than that achieved in 2013.

The fall in profit was mainly caused by lower business disposal and reclassification gains and the negative effect, on both revenue and costs, of significant items including fines, settlements, UK customer redress and associated provisions.

On an adjusted basis, pre-tax profit was $22.8 billion, broadly in line with 2013’s level on a comparable basis, the bank said. Earnings per share were $0.69, against $0.84 in 2013. The group’s capital position remained “strong”, it said, with a transitional common equity tier 1 ratio standing at 10.9 per cent at the end of the year, compared with 10.8 per cent.

Retail banking and wealth management pre-tax profit was $5.651 billion, up 30.3 per cent from 2013; commercial banking pre-tax profit rose 46.8 per cent on the year to $8.744 billion; global banking and markets rose 31.5 per cent, at $5.889 billion.

The HSBC board approved a fourth interim dividend in respect of 2014 of $0.20 per share, taking the total dividends in respect of the year to $0.50 per share ($9.6 billion, $0.4 billion higher than in respect of 2013).

Swiss bank

“The recent disclosures around unacceptable historical practices and behaviour within the Swiss private bank remind us of how much there still is to do and how far society’s expectations have changed in terms of banks’ responsibilities. They are also a reminder of the need for constant vigilance over the effectiveness of our controls and the imperative to embed a robust and ethical compliance culture,” Doug Flint, group HSBC chairman, said in today’s statement.

“We deeply regret and apologise for the conduct and compliance failures highlighted which were in contravention of our own policies as well as expectations of us,” he continued.

“In response to, and in parallel with, the tax investigations prompted by the data theft more than eight years ago, we have been completely overhauling our private banking business, putting the entire customer base through enhanced due diligence and tax transparency filters. Our Swiss Private Bank customer base and the countries we serve are now both about one-third of the size they were in 2007. In addition, HSBC is already working to implement the OECD’s Common Reporting Standard and other measures to foster greater transparency. We cannot change the past. But, looking to the future, we can and must reinforce controls and provide demonstrable evidence of their effectiveness. This forms part of our commitment to global standards, to ensure that we will never knowingly do business with counterparties seeking to evade taxes or use the financial system to commit financial crime,” he said.

Other details

Revenue was also lower in retail banking and wealth management, due primarily to the continuing repositioning of the business, the bank said.