 "HSBC's H1 net rises 10% on bumper Hong Kong results")
HSBC Holdings beat expectations with a 10% rise in first-half profit thanks to a strong performance in Hong Kong and said it had agreed a $5.2 billion sale of its business in Brazil.
Europe's biggest bank by market value is to sell the unprofitable Brazilian arm to Banco Bradesco SA, Brazil's second-biggest private-sector bank, for a higher than expected 17.6 billion reais ($5.2 billion).
The sale is part of a plan by Chief Executive Stuart Gulliver to shed underperforming business and reduce costs, including almost 50,000 job cuts, to try to improve returns.
HSBC said its first-half profit growth was driven by an investing frenzy in Hong Kong among individual customers prompted by China's soaring markets earlier in the year.
HSBC has become increasingly reliant on Hong Kong for profits as its businesses in Europe, the United States and other emerging markets slow. The bank has said it is considering moving its headquarters back to the former British colony.
It intends to complete a review of its headquarters by the end of this year and Hong Kong is seen as the most likely alternative.
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But the market turmoil in China in the past few weeks could mean a gloomier outlook in the second half of the year.
The bank said its performance in July was satisfactory, but said the banking environment remained challenging and the economic climate was particularly uncertain in China and the euro zone.
"We're still reasonably confident that Chinese economic growth will be at the numbers we thought previously," CEO Gulliver said.
"While we probably haven't fully seen the impact of bad debts from the sell-off in the stock market ... we're still very much looking for 7% or 7.1% GDP growth this year for China."
China's stock markets have helped to drive profits for the bank's broking business in Hong Kong via the Stock Connect trading link with Shanghai because mainland shares soared prior to their June crash.
It also helped wealth management and equities revenues in the first half. Gulliver said those areas could have a more muted performance in the third quarter, but he said the impact of the Chinese market sell-off should be limited.
"The bank's profits benefited from the boost from Stock Connect before the market turned, so I wouldn't extrapolate the same level of performance into the third quarter and beyond," Ian Gordon, analyst at Investec Securities in London, said.
Asia now accounts for two-thirds of HSBC's profits, and Gulliver has pinned the bank's fortunes on a 'pivot' to the region.
HSBC is speeding up a cull of unprofitable businesses and countries with its plans to cut almost 50,000 jobs, half of them from selling operations in Brazil and Turkey.
It is close to selling its loss-making Turkish business to Dutch lender ING Group for around $700-$750 million, sources have told Reuters.
COSTS RISE
HSBC said its pretax profits in the first six months of the year were $13.6 billion, up from $12.3 billion a year earlier and well above analysts' average forecast of $12.5 billion according to a poll conducted by the bank.
Its London-listed shares were up 0.7% at 583.8 pence by 0910 GMT, outperforming a slightly firmer European bank index.
The bank increased to $1.3 billion from $550 million the sum set aside to cover costs from various regulatory investigations into banks' rigging of foreign exchange markets worldwide.
HSBC was one of several banks fined last year for the alleged manipulation of foreign exchange trading and it said investigations into the activity by the US Department of Justice and other authorities were continuing.
It also set aside $147 million to cover potential fines and settlements in its private bank, after allegations earlier this year that its Swiss business helped thousands of customers evade tax.
HSBC said its investment bank had a good start to the year, led by growth in equities and a 21% rise in foreign exchange trading revenues.
Gulliver said the bank cut assets by $50 billion on a risk-adjusted basis in the first half of the year, mostly in the investment bank, which helped to lift its core capital ratio to 11.6% from 11.1% a year ago.
Analysts said that strong capital position could help to lift its future dividend payouts.
Cutting costs remains a challenge. Costs rose 7% from a year ago, which the bank said was due to high regulatory and compliance costs and spending to grow revenues. HSBC said it added more than 2,200 compliance staff in the first half alone.