HSBC profits roar ahead 16% as margins widen

The boom in banking earnings continued yesterday as HSBC, the UK-based global banking giant which owns Midland, saw generous margins power pre- tax profits to pounds 3.7bn, up 16 per cent on 1994. "We are firing well on all fronts," said John Bond, HSBC's chief executive.

The strong performance, echoing bumper profits already reported from Lloyd's and NatWest Group, highlighted the best year banks can remember for a long time. In particular, generous interest margins during 1995, combined with bad debt provisions at all-time lows, pushed earnings to high levels. "You would have to go back decades rather than years to find the banks enjoying in real terms this sort of high profitability," said Chris Ellerton, analyst at SBC Warburg.

HSBC benefited from its international geographical spread, which sets it apart from the other large UK retail banks, as net interest margins in all its three main lending areas, Hong Kong, Britain and the US, strengthened profits. ``They have seen a very good improvement in the quality of profits, with underlying earnings not that volatile," said Hugh Pye, analyst at BZW.

But the group stressed it still faces a big challenge in getting costs down at Midland, where job cuts are expected to continue. Midland had a cost/income ratio of 67 per cent last year, down from 70 per cent in 1994. The aim, which is similar to that of its rival NatWest, is to get this down to around 60 per cent. "We are working towards that end relentlessly," said Mr Bond. "Unquestionably there will be fewer people in bank jobs, but we are not planning anything draconian."

The Banking Insurance and Finance Union yesterday said Barclays, which reports its results today, is planning a huge new wave of job losses despite expected profits of pounds 2bn. BIFU said older workers, including staff in their forties, were being targeted. More than 17,000 jobs have been axed since the end of 1991, largely as a result of new technology.

Midland said its cost performance last year was hampered by large one- off charges, pounds 76m for redundancies and pounds 34m for vacant space, which were more than double their 1994 levels. Midland also saw a massive 102 per cent increase in its charge for bad and doubtful debts to 198m. HSBC refused any comment on the details of this increase, but analysts believe it reflected a large specific provision against its exposure to Eurotunnel. Along with NatWest, which also announced an unspecified but large special provision in its results last week, HSBC is the other large UK lender to the troubled cross-channel operation.

Overall, Midland's 1995 pre-tax profit was up 10 per cent at pounds 998m. Operating profit before provisions was up 21 per cent to pounds 1.2bn, which Mr Bond said reflected the improvement being made in restructuring Midland. "There are a considerable amount of investments in the future of Midland's numbers," he said, adding that the modest rise of just 3 per cent in the bank's attributable profit did not tell the whole story. But speaking in Hong Kong, Sir William Purves, HSBC's group chairman, said: "Of course I am not happy with 3 per cent and I don't think our shareholders would be either."

A noticeable area of weakness continues to be investment banking where the attributable profits was 19 per cent lower, at pounds 171m than in 1994. The main reason was lower volumes in James Capel's equity markets, but analysts said the group continues to suffer from a lack of focus. HSBC recently announced plans to integrate its investment banking businesses. Mr Bond also said HSBC is interested in boosting its fund management business through acquisition.

HSBC shares closed down 16p at 1056p in a weak London market.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
News
people
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?