HSBC shows it is no spent force

The banks' results season now drawing to a close shows the clearers are still on a roll, and yesterday's figures from HSBC prove that the good news is not just confined to the UK. The London-based banking giant's 16 per cent rise in pre-tax profits to pounds 3.67bn owed far more to overseas markets than it did to its adopted home market.

Indeed, these results continue to suggest that HSBC was unlikely to have shifted its domicile from Hong Kong to London had it not been for the impending Chinese takeover of the Crown colony next July. Hong Kong remains the power house of the group, with profits there rising 9 per cent to pounds 1.59bn. Net interest margins there, up from 2.62 per cent to 2.88 per cent, are the fattest of any of HSBC's worldwide operations and interest income levels, up 16 per cent, are rising as fast as in the rest of Asia Pacific and more than twice the rate of 7 per cent seen in the UK.

But while Hong Kong powers on, the figures from elsewhere have gone a long way to dispel last year's notion that HSBC is a spent force. The US business grouped around Marine Midland has recovered strongly, doubling profits to pounds 359m last year. Management has clearly got to grips with the problems there, with a big reduction in the non-performing assets at the problem Concord Leasing operation and a 13 per cent drop in expenses.

At home, Midland Bank's 10 per cent increase in profits to pounds 998m was flattered by securities trading losses in 1994. However, HSBC is not sitting on its hands. Although the cost to income ratio tumbled from 70.1 per cent to 67.3 per cent, it remains high by the standards of its peers and the aim is to get it down to 60 per cent over three years.

The overall picture is of both volumes and margins continuing to advance, while the loan book improves in quality. Non-performing loans fell by a quarter and although bad debt charges were higher in the year, much of this was due to a prudential exercise in raising the general provision in the UK.

The economic case for HSBC continues to be strong. Corporate earnings are expected to accelerate in Hong Kong for another two years, the US is picking up again and the outlook for the UK is quite reasonable. The problems all arise on the political front.

Of these, Hong Kong plainly looms the largest. Nobody can tell what the Chinese will do, but the Bank of China is set to be a formidable competitor to HSBC in the colony. Meanwhile, in the UK, the banks will be a prime target for any windfall tax imposed by a future Labour government.

Assuming profits hit Morgan Stanley's forecast of pounds 4.1bn this year, the shares, down 16p at pounds 10.56, look reasonable value on trading grounds on a prospective multiple of 10. But the risks remain.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...