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HSBC pre-tax profit plunges 62% to $7.1b

Income from UAE operations before tax up 31% to $480m; lender to invest $2b in digital transformation and will buy back $1b worth of shares

Image Credit: Reuters
People walk past a major branch of HSBC at the financial Central district in Hong Kong, China February 21, 2017.

HSBC Holdings, Europe’s biggest bank by assets, on Tuesday reported $7.1 billion (Dh26.07 billion) in profit before tax — down $11.8 billion (62 per cent) from the $18.87 billion reported in 2015.

The bank’s results last year were adversely impacted by significant items of $12.2 billion.

These included the bank’s decision to write off the remaining $3.2 billion in its European private banking business. The write-off accounted for part of the $6.8 billion pre-tax loss at its European business in 2016.

Adverse fair-value movements of $1.8 billion arising from changes in credit spreads on debt, and the impact of bank’s sale of operations in Brazil also fuelled the plunge in pre-tax profits, HSBC said in statement sent to stock exchanges.

The bank’s reported revenue of $48 billion in 2016 was down by $11.8 billion from $59.8 billion in 2015.

Loan impairment charges and other credit risk provisions fell by $300 million and operating expenses rose by $40 million.

The bank announced investments in digital banking and further share buy-backs.

“We are investing over $2 billion in digital transformation initiatives to improve our offer to customers, and are instigating a further $1 billion buy-back programme reflecting the strength and flexibility of our balance sheet,” Stuart Gulliver, group chief executive, said in a statement.

Middle East and Africa

In the Middle East and Africa region that includes Egypt, the UAE and Saudi Arabia, the bank reported a pre-tax profit of $1.5 billion compared to $1.49 billion in 2015.

For the UAE operations, the bank reported a profit before tax of $480 million, up 31 per cent compared to the $367 million reported in the previous year.

While the global banking and markets business contributed $298 million to the UAE’s pre-tax profit, retail and commercial banking businesses contributed $83 million and $93 million respectively.

In Egypt, the bank’s pre-tax profits were up at $454 million compared to $410 million in 2015. In Saudi Arabia, its pre-tax profit declined to $435 million from the $500 million reported in 2015.

Business at its Asian unit remained fairly steady, with pretax profit dipping 12.5 per cent to $13.8 billion, mainly because of the effect of one-time items.

Trimming global operations

HSBC is in the middle of trimming back its global operations as it carries out a sweeping reorganisation to focus on faster-growing Asia, where it expects the region’s growing affluence to drive profits.

HSBC’s shares have been among the best-performing European bank stocks since Britain voted in June to leave the European Union.

The British bank, which has said it may move 1,000 jobs to Paris following Britain’s exit from the European Union, has said it had so far seen little impact from the referendum's outcome on its business.

Douglas Flint, HSBC group’s chairman, said the bank’s performance remained satisfactory despite the volatile political and economic conditions.

“2016 will be long remembered for its significant and largely unexpected economic and political events," Flint said in a statement.

"These foreshadowed changes to the established geopolitical and economic relationships that have defined interactions within developed economies and between them and the rest of the world. The uncertainties created by such changes temporarily influenced investment activity and contributed to volatile financial market conditions. Against this background, HSBC’s performance in 2016 was broadly satisfactory,” Flint added.

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