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HSBC reported a 10 per cent rise in third quarter profits on Monday, helped by tighter cost control and fewer losses from bad loans, and confirmed it was being investigated as part of a global probe into currency market trading manipulation.
Europe’s largest bank said underlying pretax profit was $5.1 billion for the three months to September 30 — up 30 per cent on a statutory basis — with strong Hong Kong and British markets together accounting for more than half of earnings and offsetting a fall in Latin American profits.
Chief Executive Stuart Gulliver said he saw evidence of a broadening recovery in which the US should continue to grow, albeit slowly, and the UK would outperform the Euro zone.
“There are signs for optimism around. We’ve always been confident China would have a soft landing ... which is supportive for the rest of Asia-Pacific,” he told a conference call with reporters.
Gulliver also confirmed that HSBC was cooperating with Britain's Financial Conduct Authority, which is leading an investigation into the $5.3-trillion-a-day foreign exchange market that has spread to include regulators in the United States, Asia and Switzerland. Traders from some of the world's top banks, including Barclays, Citigroup and JP Morgan have been suspended or put on leave.
HSBC, which has vowed to instill a more responsible corporate culture after it was fined a record $1.9 billion last year for lax anti-money laundering compliance, has not taken any action against its staff, Gulliver said.
“We haven’t suspended anyone. It’s at a very early stage and the names we've been given so far don't work for us any more,” he said. The bank said no-one had been fired, and added that it had been contacted in October.
Regulatory caution
Despite the mushrooming FX probe, with its echoes of the recent interest rate fixing scandal, investors focused on HSBC's improved quarterly performance and growth prospects.
HSBC led the FTSE 100 index higher with a 2.4 per cent gain by 1000 GMT and kept the European banking index in positive territory after a call for higher capital requirements by the Swiss finance minister over the weekend dragged sector heavyweights UBS and Credit Suisse sharply down.
“If investors are seeking a strong and dependable bank, HSBC could be the place to look. The key metrics were, on the whole, progressive,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
The rise in HSBC’s profits, in line with analysts’ forecasts, was underpinned by a 4 per cent dip in losses from bad loans and a $700 million fall in operating expenses to $9.6 billion, although that was mainly due to the absence of one-off items last year.
Underlying costs were up on the year due to investments, wage inflation and regulatory costs. Revenue was flat.
HSBC said its capital position improved, with a core tier one ratio, a key measure of financial strength, of 10.6 per cent under tough new rules and a leverage ratio of 4.2 per cent, above an international requirement of 3 per cent.
But the bank cautioned that there was significant regulatory uncertainty on the horizon as financial watchdogs around the world continue to refine new rules insisting banks hold more capital in order to shore them up against any future financial crisis.
That warning was borne out over the weekend when Swiss Finance Minister Eveline Widmer-Schlumpf was quoted as saying authorities there were discussing raising the leverage ratio for Swiss banks to 6-10 per cent, two or three times the required ratio set out by the global Basel III accord, which is being phased in by 2019.
