Chillin' out till it needs to be funded
2011 results from HSBC were not worth a lightning review alone as th ebank outscored competitors on all parameters despite a Net Interest Margin of just 2.5%, beating everyone to a recovered Net Interest income scenario of $41 bln , ahead of anyone else and building the quarters huge revenue bill of $32 bln despite HSBC USA still carrying losses of nearly $4 bln. Though the bank cut gross staffing by more than 7k in the year and 5.4K in FTE count, it still ended up increasing operating costs for 2011 incl restructuring charges of $1.1 bln. UK operations cost it another $900 mln in PPI penalties , all in the second half and the $570 mln in the bank levy it paid in the UK. The bank wants only $500 mln for their spanish and Italian businesses from the LTRO to make a token appearance while RBS and Lloyds dip for $22 bln and $16 bln. Last time they borrowed $7.5 bln for their French operations
The bank is larger than US Big 4 and even Chinese competition with $1.25 Tln in RWA and both China and India with $1 bln in PBT and Mexico, Argentina and UAE from LatAm and MENA operations ( with >$500 mln in PBT ) for the year showed its successful targeting of global markets. In Asia, Malaysia also grew into the Top 10 PBT markets , growth in these market s more than 12%. The three geographies account for 49% of the bank in revenue.
The growing RWA took its toll on Core Tier I Capital ratio per Basel 2.5 to 10.1% for the $122 bln in Capital increasing from $116 bln for 2010. The bank profits in fact trended down with trading as usual losing 24% of its income on year. However globally, the Bank’s pre tax profits of $21.9 bln and Post Tax profits of $17.9 bln were a record breaker with Chinese banks also operating at a lower Net interest margin.
With Commercial Banking scoring a PBT of $7.8 bln, Trading excluding European losses of $2.4 bln, ended much lower a t $7 bln ( Global Banking and Markets is otherwise presented as $7 bln PBT, but we took a leap based on the missing $2.7 bln in Europe on the geographical segments and marking of $2.4 bln as Other losses in segments. Fair Credit adjustments ( DVA) had their part to play in the results too even as HSBC Finance run off cost it $3.7 bln as DVA added back $3.7 bln to profits before tax.
Retail Banking and Wealth Management incl unprecedented growth in Brazil reported only $4 bln in profits. The bank is still carrying the Cap One sold portfolio in cards , continuing operations in HSBC USA netting it $700 mln. Cost Income Ratio have strung up to 57.5% against the 50% CI ratio target because of all the cost items above. The bank claims sustainable accounting savings of $900 mln of their $3 bln program. Trading income has come down to less than 8% of the Total Income. The bank has $9 bln in issued equity for 17.86 bln shares in issue and is already $136 bln on the bourse at a 30% discount of $38 per share compared to its $55 pre crisis average. Total Shareholders’ equity before run off business charges is up to $159 bln Brazil reports $1.3 bln in Pre Tax, China without partners $700 mln ( another $1.2 bln from partners in H1 itself) and $800 mln from India
Global Banking & Markets revenues were $20.7 bln and RBWM nearly $10 bln. Loan impairment relealess equaled $2.2 bln but still accounted for a $12 bln hole in $83 bln Operating Income for a Net Op Income of $71 bln. The Advance Deposit Ratio was a healthy 75% and Pre Tax return on Invested Assets 1.9% ( 0.6% on post tax) but Return on Equity climbed to 10.9% in sight of the strategic objective of 12-14%. RBWM profit of $4.3 bln was an improvement of 11% too, but Comml Banking grew more than 30%
The bank claims almost 10% of the China-Brazil Trade financing at the center of its new strategy in Brazil as China’s own banks set up representative shops and China remains Brazil’s largest partner. Retail Banking (RBWM) costs grew to 63% of income even as costs in India, China, Singapore and Malaysia ( Asia ex Hong Kong) settled down to 46% , Costs in Latin america still higher than 63% through trending down while Commercial Banking accounting for itself as the best business at 46% of Income in Costs.
The bank expects to make more than $10 bln further in asset sales this year to grow back Core Tier I while expecting Basel 3 denomination to increase the requirement of Capital by another $13 bln
EPS of $0.92 cents was used to distribute a $7 bln dividend ( $0.41 cents or $0.39 cents per ord share). the UK bank levy was also applied to its foreign assets the impact $340 mln of the $570 mln it paid the exchequer. After $3.4 bln in Var Pay, it retains $12.8 bln for strengthening Core Tier I ratio