HSBC up 19% as dealing profits soar

HSBC holdings, the global banking group that owns Midland, reported a better-than-expected 19 per cent rise in pre-tax interim profits to pounds 1.7bn. The results were buoyed by a spectacular increase in dealing profits, up 250 per cent to pounds 259m from dismal levels a year ago. HSBC shares closed up 3p at 843p yesterday in London, and down HK$1.75 at HK$100 in Hong Kong.

The bank recommended a 15.6 per cent increase in the interim dividend to 9.25p a share. "A good performance was turned in by all our commercial banking operations which reported higher profits," Sir William Purves, group chairman, said. Midland Bank reported a 19 per cent rise in pre- tax first-half profits to pounds 527m. At the operating profits level before provisions, Midland's earnings were up by 20 per cent to pounds 537m. While the commercial banking operations took advantage of the higher interest income and the improved dealing activities, HSBC's investment banking operations suffered in what Sir William described as "challenging market conditions".

Overall earnings in this sector, covering merchant banking, securities trading and asset management, saw a 14 per cent drop in pre-tax profits to pounds 104m. In particular the securities trading arm, mainly James Capel, suffered a halving of its pre-tax profits to pounds 18m, reflecting lower trading volumes and fierce competition. Half-year profits in asset management were pounds 3m down on 1994 to pounds 10m.

HSBC is still trying to reorganise its investment banking operations into a more closely integrated organisation.

Sir William Purves singled out asset management, along with commercial banking in the US, as an area where HSBC is looking to bolster its activities by acquisition. "We would like to develop asset management, but there are a limited number of other players for sale and we do not have in mind to buy a very large one," he said.

Charges for bad debts were pounds 195m compared with pounds 173m in the first half of 1994. The group's cost/income ratio was 56.3 per cent, an improvement on 59.4 per cent for the same period of 1994, despite a 5 per cent rise in operating expenses.

There was disappointment over the lacklustre 4 per cent rise in profits at the Hang Seng Bank, which reported earnings lower than many analysts expected.

The bank, which focuses heavily on the local Hong Kong market, has been hit by the downturn in property loans.

HSBC's results show that while the Midland Bank and the Hongkong Bank have more or less the same amount of assets, the Midland Bank employs over 45,000 people, more than double the Hongkong Bank's staff.

Yet it made a net contribution to group profits of pounds 326m, which was almost half the pounds 629m chipped in by HSBC's original bank in Hong Kong.

Investment Column, page 16