HSBC chief's pay rises as profits hit by bad debts

HSBC, the largest bank headquartered in Europe, posted pre-tax profits down 14 per cent at $8.81bn (£6.12bn) yesterday and revealed it had raised the pay of its executive chairman to £1.8m.

The main dampener on profits was a $1.11bn uplift in bad debt provisions which took the charge to $2.04bn. Some $1.12bn of the provision related to the Argentina crisis, of which $520m reflected the anticipation that HSBC would receive no compensation for the effects of the forced devaluation of the peso.

HSBC renewed its warning that it might pull out of Argentina entirely if the political situation worsened, and said it would invest no new shareholders' money there until the situation became clearer. "It is HSBC's policy to invest in countries for the long term, but it's entirely possible that political events could cause us to reassess this policy," said Sir John Bond, the executive chairman.

HSBC also lost $575m in the settlement of a lawsuit against its Republic New York business, which it purchased in 2000.

Douglas Flint, the finance director, said ordinary provisions were merely returning to normal having been unusually low previously. "It's hard to see how we could lose as much in Latin America this year," he added.

Personal banking profits rose 15 per cent to $3.5bn, fuelled by strong growth in mortgage lending, although commercial banking profits dipped 14 per cent to $2.4bn. Profits from corporate, investment banking and markets operations rose 13 per cent to $4.0bn as a strong performance in capital markets offset weakness in corporate finance. "No one's going to quibble with the bad debt charge," said Robin Down, analyst at Morgan Stanley. "I'd be very surprised if HSBC pulled out of Argentina. The way they are provisioning makes it look like their business there is ongoing."

HSBC shares rallied 7.6 per cent, or 59p, to close at 839p yesterday as the more globally-exposed banking stocks surged on the back of a raft of strong US economic data.

Sir John received an £800,000 discretionary bonus last year, taking his total emoluments from £1.6m to £1.82m. Aggregate board pay rose from £7.7m to £8.8m. The rises came despite the award of low or zero bonuses in the group's investment banking unit.

HSBC delivered a cautious assessment of the prospects for the world economy, voicing concern over continued overcapacity in the world's largest industries and service sectors. "The robust consumer demand which has supported a number of Western economies may prove hard to maintain as pressure on corporate profits leads to further industry restructuring and higher levels of unemployment," said Sir John.

However, interest rate cuts were likely to have "staved off protracted recession" and a "modest recovery" was possible this year.