HSBC eases Asia fears with ten per cent profit surge

SHARES IN HSBC jumped 3 per cent yesterday after the bank shrugged off concerns about its Asian economic exposure to beat most analysts' forecasts with a 10 per cent rise in pre-tax profits to $4bn (pounds 2.5bn) in the first half year.

The UK, where HSBC waves goodbye to the old Midland name in September, was a big driver behind the group profits growth. Profits from UK banking were up 3.9 per cent to pounds 617m despite a pounds 30m pensions mis-selling charge, reflecting a benign economic environment and a better mix of business.

Asia also returned a better performance than expected despite continued problems in parts of the region. Hong Kong managed an 8.2 per cent rise in first-half profits to $1.4bn despite a largely stagnant domestic economy.

Keith Whitson, the chief executive, said the group was especially encouraged by the 18 per cent rise in sales of life insurance, pensions and investment product in the UK, reflecting its success in encouraging cross-selling to existing customers of higher-margin savings products.

"Our results," he said, "reflect both the benign environment in which we operate and the solid progress we have made in implementing our strategy. For the first time in our history our profits before provisions approached $5bn for a six month period."

The developed markets overall accounted for 55 per cent of profits. Dividends were up 8 per cent at 13.3 cents a share.

In the UK costs were down from 54.6 per cent of income to 52.9 per cent compared with the same half last year, while the net interest margin rose to 2.72 from 2.47 at the end of last year. The one blackspot was bad debt provisions, which nearly doubled to pounds 132m. For the group as a whole bad debt charges were down by $409m to $1.1bn.

Mr Whitson said that he would not rule out further acquisitions after the $5.1bn takeover of the Safra and Republic Bank of New York announced in May. But leaving aside some of the smaller Asian countries such as Thailand and Korea where the restructuring of the financial sector is throwing up specific opportunities, he said the group had "massive opportunities for organic growth".

He added: "We don't have any particular shopping list. We tend to be very selective. We will only do something if we see it as being accretive and of benefit to our shareholders."

Although Korea, Thailand and Indonesia are starting to show signs of recovery, there are continuing problems in Malaysia, where the group is cutting 1,000 staff.

Mainland Chinese companies are also a problem area, accounting for 30 per cent of the bad debt charges for Hong Kong and the rest of Asia-Pacific.