HSBC profits higher on cost cutting, favourable markets

Hong Kong, China - HSBC’s profits rose in the first half of the year as it slashed costs and won support from favourable market conditions, the banking giant said on Monday

Net profit jumped ten per cent to almost US$7bn in the first six months of the year compared to the first half of 2016, the group said in an earnings statement.

Pre-tax profit for the six months rose five per cent to US$10.2bn.

Outgoing chairman Douglas Flint described the performance as ‘extremely pleasing’ - coming after a turbulent 2016 that resulted in huge writedowns and restructuring costs for the London-headquartered bank as it laid off thousands of staff.

The Asia-focused giant has been on a recovery drive over the past two years, streamlining its operations and exiting unprofitable businesses.

Like many global banks it has struggled to boost profits as China’s economy slows and uncertainty caused by Britain’s looming exit from the European Union casts a shadow over the sector.

In addition, HSBC has grappled with stricter capital rules, low interest rates despite fresh tightening - and scandals stemming from its own misbehav- iour.

However following Monday’s results, chief executive Stuart Gulliver expressed confidence in the outlook despite strains including Brexit uncertainty.

“There is still engines for growth if you believe in the long term story of China, Asia-Pacific, the ASEAN, the Middle East,” he said. “There is still further upside and actually we’re still probably at the beginning of a [rate] tightening cycle,” he added.

Higher interest rates are good for banks as it leads to increased returns on the interest they make from products including home mortgages and credit card purchases.

HSBC also benefitted in the first half from improving performances on global markets, including record-highs for indices on Wall Street.

‘Markets-based revenues benefited... commercial banking customer activity was robust, wealth management and insurance revenues were notably stronger in Hong Kong, and credit experience globally remained remarkably sound’, HSBC said in its earnings release.

‘As central bank interest rates edged higher, led by the US, we began to benefit from improved margins on our core deposit bases, providing a welcome enhancement to the group’s revenue mix’, the lender added.

HSBC also announced on Monday a share buyback of up to US$2bn, expected to be completed in the second half of the year - helping its share price to rise two per cent to 758.8 pence in London afternoon deals.

In Hong Kong, its shares closed up 2.62 per cent at US$10.06.