Emerging markets growth vital for HSBC

LONDON: Global rating agency Fitch says there is no immediate rating impact from HSBC Holding PLC’s latest results. HSBC reported an increase in underlying pre-tax profit of 18% compared with 2011 as growth in Hong Kong, India, Brazil, France and Canada offset various non-recurring charges including USD1.9bn fines for misconduct in the US and USD2.3bn provisions for customer redress in UK. Key profit drivers were traderelated commercial banking activities and the European global banking and markets operations, in particular as credit and rates trading benefited from liquid markets. Underlying profit excludes USD5.2bn credit-spread driven fair value losses on its own debt (FVOD) and USD9.5bn disposal gains.

Global rating agency Fitch believes that organic growth in higher-risk markets, further restructuring in retail banking and wealth management in the US and Europe and the wind-down of its considerable legacy assets will be crucial for the bank to meet an unchanged 12%-15% return on equity target (2012: 8.4% or 11.5% adjusted for FVOD losses). Management has simplified the group since it announced a USD3.5bn annual cost savings target in May 2011 with key disposals in North America, Asia and Latin America contributing to cumulated annual cost savings of USD3.6bn and a reduction in staff numbers by 12% over the same period. HSBC’s common equity Tier 1 ratio would be 9.0% at end2012 if Basel 3 was already implemented without taking any mitigating actions. The 60bps decline compared with the bank’s previous estimate at end-9M12 results from more clarity around the implementation of the evolving rules. The ratio improved to 9.8% following the completed sale of Ping An early February 2013 and a smaller stake in Industrial Bank as of January 2013. Fitch views this level as solid.