Tue, May 10, 2011 - Page 10 News List

HSBC Holdings vows better cost control as expenses rise on staff, compensation

Bloomberg

HSBC Holdings PLC, Europe’s largest bank by market value, pledged “increased emphasis” on cost control after expenses jumped in the first quarter of this year.

Net income rose 58 percent to US$4.15 billion compared with US$2.63 billion in the year-earlier period, the London-based bank said yesterday in a statement. The lender said costs as a proportion of income rose to 60.9 percent from 49.6 percent, and that it set aside US$440 million to compensate clients who were improperly sold British personal-loan insurance. It’s HSBC’s first detailed quarterly earnings report.

“We have increased our emphasis on cost management across the group, launching a number of cost-reduction programs during the period,” chief executive officer Stuart Gulliver, 51, said in the statement.

The rise in operating expenses reflected higher staff costs at the investment banking unit and “in particular a provision of US$440 million relating to payment protection insurance in the UK.”

HSBC, which in January replaced Michael Geoghegan with Gulliver and in February cut its profitability target, will this week outline a new strategy. Banks including Barclays PLC and Lloyds Banking Group PLC are reviewing their operations as regulators force them to hold more capital to prevent another financial crisis.

Gulliver may announce plans to cut costs and withdraw from businesses or countries that don’t provide sufficient returns, analysts, including Rohith Chandra-Rajan at Barclays Capital, said last week.

Pretax profit in Europe declined 65 percent to US$652 million, reduced by the PPI provision and a “lower contribution” from its investment banking unit, the bank said. In Hong Kong, pretax profit rose 3.5 percent to US$1.56 billion. Pretax profit in North America declined to US$181 million from US$450 million against the year-earlier figure.

Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC, Britain’s biggest government-assisted banks, posted losses for the first quarter, while Barclays PLC recorded a drop in profit as investment banking revenue tumbled.

In February, HSBC reported that net income more than doubled to US$13.2 billion last year from US$5.83 billion the previous year, missing the US$13.7 billion median estimate.

The lender said at the time it will target a return on equity of 12 percent to 15 percent, instead of 15 percent to 19 percent.

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