HSBC profits jump 10pc on HK boom
HSBC Holdings beat expectations with a 10 percent rise in first-half profit thanks to a strong performance in Hong Kong and said it had agreed a $5.2 billion sale of its business in Brazil. Europe's biggest bank by market value is to sell the unprofitable Brazilian arm to Banco Bradesco, Brazil's second-biggest private-sector bank, for a higher than expected 17.6 billion reais ($5.2 billion).
The sale is part of a plan by Chief Executive Stuart Gulliver to shed underperforming business and reduce costs, including almost 50,000 job cuts, to try to improve returns. HSBC said its first-half profit growth was driven by an investing frenzy in Hong Kong among individual customers prompted by China's soaring markets earlier in the year. HSBC has become increasingly reliant on Hong Kong for profits as its businesses in Europe, the United States and other emerging markets slow. The bank has said it is considering moving its headquarters back to the former British colony.
It intends to complete a review of its headquarters by the end of this year and Hong Kong is seen as the most likely alternative. But the market turmoil in China in the past few weeks could mean a gloomier outlook in the second half of the year.
The bank said its performance in July was satisfactory, but said the banking environment remained challenging and the economic climate was particularly uncertain in China and the euro zone.
"We're still reasonably confident that Chinese economic growth will be at the numbers we thought previously," CEO Gulliver said. "While we probably haven't fully seen the impact of bad debts from the sell-off in the stock market ... we're still very much looking for 7 percent or 7.1 percent GDP growth this year for China."
China's stock markets have helped to drive profits for the bank's broking business in Hong Kong via the Stock Connect trading link with Shanghai because mainland shares soared prior to their June crash.
It also helped wealth management and equities revenues in the first half. Gulliver said those areas could have a more muted performance in the third quarter, but he said the impact of the Chinese market selloff should be limited. "The bank's profits benefited from the boost from Stock Connect before the market turned, so I wouldn't extrapolate the same level of performance into the third quarter and beyond," Ian Gordon, analyst at Investec Securities in London, said. Asia now accounts for two-thirds of HSBC's profits, and Gulliver has pinned the bank's fortunes on a 'pivot' to the region. HSBC is speeding up a cull of unprofitable businesses and countries with its plans to cut almost 50,000 jobs, half of them from selling operations in Brazil and Turkey.