HSBC yesterday cut its profitability targets because of the cost of tougher global bank regulations and disappointed investors as its earnings last year came in slightly below analysts’ forecasts.
HSBC’s pretax profits for the year ending Dec. 31 more than doubled from 2009 to US$19 billion, but this figure came in below the average pretax profit forecast of US$20 billion, according to analysts polled by Reuters Estimates.
HSBC said it had made a good start to the year, but new chief executive Stuart Gulliver cut the bank’s long-term return on equity (ROE) target to 12 to 15 percent from a previous 15-to-19 percent target.
HSBC shares, which had been trading up 2 percent before the results, fell back and were down 3.1 percent at £6.892 by 9:10am GMT.
“It’s about a billion light at the pretax level and pretty much everybody had said it was going to be US$20 billion pretax and US$19 billion underlying and it wasn’t and they cut the ROE target again so that’s the bad news,” MF Global analyst Simon Maughan said.
Banks around the world are under pressure from regulators to raise capital to strengthen their balance sheets, in order to prevent a return of the 2008 credit crisis that resulted in the collapse of Lehman Brothers.
HSBC’s new finance director Iain Mackay said the bank’s new, scaled back ROE target not only reflected the tougher capital requirements for banks, but also global economic uncertainty, as highlighted by recent political tensions in the Middle East and North Africa.
“We’ve targeted 12 to 15 percent through the cycle for return on equity, principally taking into consideration what we view as a somewhat unstable and uneven economic recovery over the coming years as well as much higher capital requirements,” Mackay said.
HSBC’s decision to cut back its return on equity targets followed a similar move by rivals Barclays and Credit Suisse.
Both those lenders scaled back their profitability expectations, saying that their returns would be held in check by regulatory requirements to hold more capital.
Gulliver took over as CEO from Michael Geoghegan at the start of the year. Gulliver, chairman Douglas Flint and MacKay took the helm after a boardroom power struggle erupted in September last year.
HSBC’s annual report, also released yesterday, showed Gulliver was paid £6.2 million (US$10 million) last year, when he ran investment banking. That included a £5.2 million pound bonus and compared with £9.8 million in 2009.
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