HSBC Reports Small Gains in First-Half Profits

HSBC Holdings Plc reported a small increase in first-half profit, with rising expenses from investments in a new growth strategy and $765 million provision against the sale of US mortgage securities chipped away from higher revenues.

Europe’s largest bank is shifting into growth mode after the years of shrinking its global empire and restructuring the business.  It reported on Monday a pretax profit of $10.7 billion in the six months through June.  This was 4.6 percent higher than the same period from a year ago.

The bank spent on hiring more frontline staff as well as expanding digital capabilities.  As a result, its costs climbed 6 percent to $17.5 billion.

“We are taking firm steps to deliver the strategy we outlined in June.  We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns,” said John Flint, who is HSBC’s group chief executive, in a statement.

In June, Flint set out a three-year plan to invest $15 billion to $17 billion in areas like technology, as well as in China.

HSBC’s retail banking and wealth management and commercial banking divisions performed best during the first half, according to Flint.  He also added that both continued to gain from a positive interest rate environment.

Pretax profits for the period from Asia gained 23 percent to $9.4 billion.  This represented 88 percent of group pretax profits.  Flint re-emphasized Asia as one of the bank’s strategic targets during his June presentation.

Further, HSBC hasn’t yet witnessed any impact on its own performance or that of its customers from worsening US-China trade tensions, according to Flint.  However, the bank is concerned over how tit-for-tat tariffs could influence investor confidence.

“I’d be concerned the general rhetoric has a bad impact on investor sentiment investors go risk-off,” Flint said in an interview.

HSBC’s pretax profit of $5.96 billion in the April-June quarter was virtually higher than the $5.79 billion average of analysts’ prediction compiled by the bank.

First-half posted revenues gained 4.2 percent to $27.3 billion.

HSBC shares in Hong Kong slightly pared their gains after results, up 0.7 percent, in line with the broader markets.

Furthermore, HSBC stated that it has set aside $765 million to resolve a civil claim by the US Justice Department over allegations that the bank missold toxic mortgage-backed securities in the run-up to the 2007 to 2008 financial crisis.

The settlement erased nearly all of the bank’s profits for the first half of the year in North America. The company has been trying to turn around its US business that has been underperforming for years.

Part of that plan involves a push into the US credit card and personal loans market, in which the business faces a battle against heavily tightened domestic competition.

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