HSBC shares rally on profit results after cost-cutting drive

HSBC shares rallied Monday in a positive response to quarterly profit results after the British banking giant underwent a radical cost-cutting exercise.


In the three months to September its adjusted pre-tax profit -- which strips out one-off items and unfavourable currency movements -- rose seven percent from a year earlier to $5.59 billion, beating analysts' expectations.


Reported pre-tax profit, however, plunged 86 percent from a year earlier to $843 million. That figure included the impact of the sale of the bank's Brazil business, which set the lender back $1.7 billion.


"Reported profits were down, but adjusted profits were higher than last year's third quarter in all four global businesses and four out of five regions," said HSBC global chief executive Stuart Gulliver.


The bank posted a net loss of $204 million for the three-month period, reversing a year-earlier net profit of $5.23 billion.


HSBC last year announced a radical overhaul to cut annual costs by $5 billion over two years by shedding 50,000 jobs worldwide, exiting unprofitable businesses and focusing more on Asia.


Gulliver said the bank had achieved $2.8 billion in annualised savings so far and was on track to reach its end-2017 target.


The bank's balance sheet showed it continued to downsize in the US, selling $900 million worth of consumer and mortgage lending assets.


Like most global banks, HSBC has been struggling 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.


On top of that, it has been grappling with stricter capital rules, low interest rates and scandals stemming from its own misbehaviour.


In the latest incident a French prosecutor has called for the bank to stand trial for allegedly enabling French clients to hide more than 180 billion euros from the taxman, a source close to the probe said Thursday.


If the case goes to trial, HSBC would face charges that its private banking division offered its customers several ways of hiding assets from the French taxman, notably via the use of offshore tax havens.


But analysts said the bank's efforts to strengthen its bottom line and its decision to maintain its dividend at $0.10 per ordinary share were welcomed by investors.


HSBC shares closed up 2.96 percent at HK$59.15 in Hong Kong.


"It's in better shape than its rival Standard Chartered," said Dickie Wong, executive director of research at Kingston Securities Ltd.


"They did what they needed to do," he added, referring to HSBC's cost-saving drive.


The September quarter adjusted profit topped the $5.29 billion average estimate of five analysts surveyed by Bloomberg News.


Adjusted revenue rose two percent to $12.79 billion compared with a year earlier.


Gulliver said the bank was 59 percent of the way through a $2.5 billion share buyback announced in August and would finish late this year or early 2017.


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