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Wealth, Personal Banking Profits Fall At HSBC

Tom Burroughes, Group Editor , 24 February 2021

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The group covering private banking activities at HSBC was squeezed by the pandemic last year, it reported yesterday. Revenues were affected, as were expected credit losses.

(An earlier version of this news item ran yesterday on WealthBriefing, sister news service to this one. It is updated with share price and analyst reaction.)

The wealth and personal banking arm of HSBC – the area including its private bank business – reported an adjusted pre-tax profit of $4.14 billion for 2020, against $8.883 billion a year earlier.

The segment’s net operating costs stood at $15.024 billion in 2020, slightly narrower from $15.088 billion a year before. Net operating income was $22.01 billion in 2020, contracting from $25.565 billion a year earlier. Its adjusted cost/efficiency ratio was 68.3 per cent, out from 60.2 per cent. Expected credit losses were $2.855 billion in 2020, up from $1.348 billion.

Across the entire UK/Hong Kong-listed group, HSBC’s adjusted pre-tax profit fell to $12.149 billion from $22.149 billion. 

“The pandemic inevitably affected our 2020 financial performance. The shutdown of much of the global economy in the first half of the year caused a large rise in expected credit losses, and cuts in central bank interest rates reduced revenue in rate-sensitive business lines,” Noel Quinn, group chief executive, said. “We responded by accelerating the transformation of the group, further reducing our operating costs and moving our focus from interest rate-sensitive business lines towards fee-generating businesses. Our expected credit losses stabilised in the second half of the year in line with the changed economic outlook, but the revenue environment remained muted,” Quinn said. 

The banking group had a Common Equity Tier 1 ratio – a standard international measure of a lender’s financial strength – of 15.9 per cent, it said in a statement today. 

HSBC said that it is sticking to a prudent policy over dividend policy following moves by the UK’s Prudential Regulation Authority to move back from its restrictive policy last year amid the outbreak of COVID-19. “In the meantime, for 2021 dividends the PRA is content for appropriately prudent dividends to be accrued but not paid out and the PRA aims to provide a further update ahead of the 2021 half-year results of large UK banks. As a result, the group will not be paying quarterly dividends during 2021 but will consider whether to announce an interim dividend at the 2021 half-year results in August,” HSBC said.  

“As expected, HSBC announced plans to accelerate investment further toward Asian markets investing an extra $6.4 billion over the next five years. As well as China and Hong Kong, the bank will invest heavily in the rest of Asia. Wealth management will be a key focus as well as technology in order to drive efficiency," Rob Murphy, MD, Financials at Edison Group, said in a note.

“The [revenue and profit] figures highlight the pressures on the banking sector that are forcing the bank to cut around 35,000 roles with the possibility of increasing the count over the coming months. The company is still exploring options for its US and French retail banking units. As a result of the low interest rate environment, HSBC scrapped its previous return on tangible equity (RoTE) target of 10 to 12 per cent by 2022 and now targets a return on tangible equity above 10 per cent in the 'medium term'."

Shares in the bank were down by 1.31 per cent mid-afternoon in London.

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