HSBC Holdings Plc, Europe's biggest bank by market value, said annual profit rose 35 percent, helped by an increase in consumer borrowing and income from trading currencies and fixed income.
Net income rose to US$11.84 billion, or US$1.07 a share, from US$8.77 billion, or US$0.83, the London-based bank said tyesterday in a Regulatory News Service statement.
Chairman John Bond, 63, is expanding in countries such as China and India to counter falling lending margins and higher loan loss provisions at the bank's Household International Inc US business. HSBC bought House-hold, a lender to consumers who can't obtain credit from other banks, for US$15 billion in 2003.
Shares of HSBC gained 0.1 percent last year, the second-worst performers on the 10-member FTSE 350 Banks index, which rose 6.8 percent. The shares rose US$0.07 to US$8.93 on Feb. 25, giving the bank a market value of about US$190 billion.
The purchase of Household, which produces about a fifth of the bank's total profit, gave HSBC more than 50 million customers in the US and pushed up provisions for doubtful loans last year to US$6.36 billion, up US$264 million from the previous year.
Interest margins at Household are narrowing as the bank reduces the amount of the most risky, high-interest paying loans it makes, Finance Director Douglas Flint said in November. Rising US interest rates will also make HSBC "susceptible to continued margin compression in an environment of US rate tightening," said Peter Toeman, an analyst at Morgan Stanley in London in a note to clients on Feb. 3.
Bond is trying to counter the slowdown at Household by lifting profits in the UK. HSBC bought Marks & Spencer Group Plc's retail banking unit for US$1,466 million in November to become Britain's No. 2 credit-card issuer after Barclays Plc. HSBC's UK bank accounts for 33 percent of expenses and 25 percent of earnings.
Founded in Hong Kong and Shanghai in 1865, HSBC has spent US$51.8 billion on acquisitions during the past five years. In August, HSBC paid US$1.75 billion for a fifth of Bank of Communications (交通銀行), China's No. 5 lender, adding to stakes it has in Bank of Shanghai (上海銀行) and Ping An Insur-ance Co (平安保險). It's also looking for acquisitions in Japan and Korea, Flint said in December.
In Hong Kong, where HSBC makes about a quarter of its profit, banks are setting aside smaller provisions against loan defaults after the economy snapped 68 months of deflation in July, pushing the jobless rate to a three-year low.