HSBC profit falls on PPI charge and costs

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The Independent Online

HSBC's profit fell in the first quarter of this year as the bank set aside $440m (£270m) to pay for payment protection insurance (PPI) mis-selling and other costs rose sharply.

The charge for PPI was lower than expected after Lloyds and Barclays made provisions totalling £4.2bn for the costs of compensating customers.

HSBC's chief executive, Stuart Gulliver, said the charge was "a reasonable stab" at the bank's costs, adding: "We stopped writing this stuff at the beginning of 2007."

Some banks continued selling PPI for a number of years after HSBC ditched the product.

Profit before tax fell 14 per cent to $4.9bn in the first quarter – Mr Gulliver's debut reporting period as chief executive after winning a bitter boardroom battle late last year.

He is due to set out his strategy for cutting costs and stripping out underperforming businesses in a keenly awaited investor day tomorrow.

Yesterday's results showed a marked contrast between the bank's booming emerging-markets businesses and developed countries such as the UK.

Profits rose 25 per cent in Asia excluding Hong Kong and by 29 per cent in Latin America. By contrast, profits fell by 65 per cent in Europe and by 60 per cent in North America.

Including PPI, $78m for cancelled US technology projects and other one-offs, costs rose 16 per cent to $10.4bn.

Mr Gulliver said he was stepping up efforts to cut spending after the cost-income ratio jumped to 60.9 per cent, including one-off charges.

It could take two or three years to cut the ratio to about 50 per cent and there was little the bank could do about staff costs, he said.

"To the extent to which it's wage pressure, we're stuck with it," he told analysts. "Everyone has woken up to the fact there is more GDP growth [in emerging markets] than in Europe or the US" and there was a battle for good staff, he added.

HSBC's rival in Asian markets, Standard Chartered, said last week that it reduced its headcount by 800 in the first quarter to limit staff costs.

HSBC's profits fell despite a $1.4bn reduction in loan impairments to $2.38bn – the lowest since the second quarter of 2006, shortly before spiralling losses at HSBC's US Household business alerted the world to the sub-prime mortgage crisis.

Cost increases were combined with revenues down 5 per cent from a year earlier. Lower income from the US consumer finance business, smaller balances on credit cards and reduced investment banking activity were to blame.

In the first quarter of 2011, HSBC took an extra $400m of charges at its troubled US business, mainly because of the slower-than-expected housing market recovery.

The bank announced increased lending in the first quarter. Asked if the bank was worried about taking on too much risk, Mr Gulliver said: "We're all over it."

HSBC shares fell 3.5p to 648.2p.

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