HSBC Profit Down 40% in ‘Difficult’ Environment

http://www.nytimes.com/2016/08/04/business/dealbook/hsbc-q2-earnings.html

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LONDON — HSBC said on Wednesday that its profit fell 40 percent in the second quarter as the bank navigated the tumult surrounding Britain’s vote to leave the European Union in June.

The lender, which is based in Britain but generates much of its earnings in Asia, also said it would buy back $2.5 billion in shares in the second half of the year after having completed the sale of the bulk of its Brazilian business in July.

HSBC is significantly reshaping its business. It announced plans last year to shed tens of thousands of jobs, to sell underperforming businesses and to shrink its global investment banking business.

The quarterly results included a gain of $584 million on the sale of its holdings in Visa Europe, as well as charges of $677 million related to its overhaul, an $800 million good-will write-down associated with its private bank and $723 million in provisions for potential settlements and other legal matters.

For the three months that ended June 30, HSBC reported a profit of $2.61 billion, compared with a profit of $4.36 billion in the second quarter of 2015. The 2015 results included a gain of $1 billion on a partial sale of its holdings in Industrial Bank of China.

HSBC reported a pretax profit of $3.61 billion in the second quarter, which was below analysts’ expectations.

“Following the outcome of the referendum on the U.K.’s membership of the European Union, there has been a period of volatility and uncertainty, which is likely to continue for some time,” Stuart T. Gulliver, the HSBC chief executive, said in a news release. “We are actively monitoring our portfolio to quickly identify any areas of stress; however, it is still too early to tell which parts may be impacted and to what extent.”

Mr. Gulliver said that the economic environment “remains difficult,” but he believed that actions taken by HSBC to reshape its business will put the bank in a far better position when normal conditions return.

Operating income declined 18 percent to $13.3 billion in the second quarter, from $16.2 billion in the period in 2015.

Net interest income, the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities, was down 4 percent to $7.85 billion in the quarter, from $8.17 billion in the second quarter of 2015.

Operating expenses rose slightly, to $10.4 billion, in the second quarter.

HSBC set aside $1.21 billion for bad and underperforming loans in the second quarter, up from $869 million in the prior-year period.

“It is evident that we are entering a period of heightened uncertainty where economics risks being overshadowed by political and geopolitical events,” Douglas Flint, the HSBC chairman, said in a news release. “We are entering this environment strongly capitalized and highly liquid.”

Mr. Flint said that repositioning the HSBC’s European business once there is a decision on whether banks will be able to continue to serve clients in the European Union out of London, a concept known as “passporting,” will “add to the very heavy workload already in place to address the regulatory and technological changes that are reshaping our industry.”

Pretax profit at HSBC’s investment bank, known as global banking and markets, increased 11 percent to $1.89 billion in the quarter, from $1.71 billion in the second quarter of 2015.

The retail banking and wealth management business reported a pretax profit of $1.25 billion in the second quarter, down from $1.75 billion in the period a year earlier.

HSBC said that pretax profit rose slightly in its commercial banking business, to $2.25 billion, in the quarter, from $2.23 billion in the second quarter of 2015.

In Asia, the bank reported a pretax profit of $3.63 billion in the second quarter. The bank reported pretax losses in its European, Latin American and North American businesses in the quarter.