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HSBC Holdings Plc, struggling to contain a scandal over tax evasion at its private bank, reported lower-than-expected fourth-quarter profit as costs and conduct provisions rose. The shares slumped the most since 2011.
Pretax profit dropped 56 per cent to $1.7 billion from the year-earlier period, London-based HSBC said in a statement on Monday. That missed the $3.7-billion average estimate of five analysts surveyed by Bloomberg. Full-year profit fell 17 per cent to $18.7 billion, worse than analysts forecast.
Chief Executive Officer Stuart Gulliver's efforts to spend billions on compliance and revive profit were eclipsed this month by a report from the International Consortium of Investigative Journalists showing details of how HSBC handled Swiss accounts for tax evaders and criminals. The CEO, 55, on Monday scrapped four-year-old profitability targets, blaming a "radically different" regulatory environment.
"It's all pretty grim reading," said Gary Greenwood, an analyst at Shore Capital Group Ltd in Liverpool, England, with a hold rating on the stock. "The numbers themselves are pretty rubbish, as costs are going up higher than revenues. With the negative headlines they're getting elsewhere at the moment, this certainly doesn't help."
Shares of Europe's largest bank slid as much as 6.5 per cent, the largest decline since August 2011, and traded 5.1 per cent lower at 3:35 p.m. in London. They have decreased about 5.6 per cent this year after dropping 8.1 per cent in 2014.
Political storm
HSBC has become the centre of a political storm at home following the ICIJ report, prompting Gulliver to issue full-page newspaper advertisements on February 15 to offer his "sincerest apology." Chairman Douglas Flint, 59, will be questioned by UK lawmakers on Wednesday in London over his role as finance director at the time.
British banks are already under pressure to toughen internal compliance and raise capital buffers amid a series of scandals. At HSBC's Global Banking and Markets unit, which houses investment-banking activities, pretax profit dropped 38 per cent to $5.9 billion in 2014, missing analyst estimates, as the lender set aside $809 million to cover costs related to a global probe into currency market manipulation.
'Satisfactory start'
Gulliver said on a conference call that the investment bank had a "satisfactory start" to 2015 and there's "nothing strategic we need to do" to securities operations.
HSBC's dividend for the year was 50 cents, compared with 49 cents a year earlier. The company's common equity Tier 1 ratio, a measure of financial strength, fell to 11.1 per cent from 11.4 per cent at the end of the third quarter.
"Capital has really gone backwards, the dividend is weaker than expected and global banking and markets had a tough fourth quarter," said Mike Trippitt, a London-based analyst at Numis Securities Ltd, with an add rating on the stock.
Operating costs climbed 6.1 per cent to $37.9 billion in the year. Finance Director Iain Mackay forecast quarterly costs of about $9.5 billion over the coming years, with the UK bank levy adding an extra $1 billion a year. Adjusted revenue was little changed at $62 billion from the previous year.
"We are still on a journey to simplify the firm" and "I don't rule out further disposals," Gulliver said. HSBC, which generates most of its revenue in Asia, has some 51 million customers and a workforce of 266,000, according to its website.
Return on equity, a measure of profitability, fell to 7.3 per cent in 2014 from 9.2 per cent. HSBC said it's looking for the measure to exceed 10 per cent, compared with the 12 percent to 15 per cent range set in 2011, when Gulliver took over as CEO.
