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2nd August 2011

HSBC profits up on lower tax and lower losses

HSBC reported first half net attributable of $9,215m (€6,462m £5,653m ¥714.6bn Y59,318m) up 36%. The jump is almost entirely due to a much lower tax provision and pre-tax profits were $11,417m (€8,006m £7,004m ¥885.4bn Y73,492m) up 3%. If the amount attributable to affiliates and joint ventures is removed from the equation then growth was nil. All of this is after a $2bn benefit arising from lower credit costs showing the strong adverse operating profit trend. Put another way, cost to income (before credit impairments) rose 660bp to 57%.


Douglas Flint, Chairman opened his remarks by talking of the good progress having been made during the half. There are probably few that would agree, at least in terms of what has actually been implemented. The response in terms of what still has to be implemented comes at least in part from the announcement of the detail behind its major planned expense cut. It has also announced the sale of around 40% of its US retail branches. Both of these items are discussed in separate articles.


Income summary 2011 2010 Change
US$m US$m %
Interest income 31,046 28,686 8
Interest expense -10,811 -8,929 21
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Net interest income 20,235 19,757 2
Net fee income 8,807 8,518 3
Net trading income 4,812 3,552 35
Fair value long-term debt & related
derivatives * -494 1,125 --
Other financial instruments fair value* 394 -40 --
financial instruments fair value* -100 1,085 --
Gains less losses - financial investments 485 557 -13
Dividend income 87 59 47
Net earned insurance premiums 6,700 5,666 18
Other operating income 1,285 1,478 -13
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Total operating income 42,311 40,672 4
Net insurance claims & liabilities -6,617 -5,121 29
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Net op. income before loan impairments etc 35,694 35,551 0
Loan impairment charges & other provisions -5,266 -7,523 -30
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Net operating income 30,428 28,028 9

Employee compensation and benefits -10,521 -9,806 7
General and administrative expenses -8,419 -7,014 20
Depreciation and impairment of property,
plant and equipment -805 -834 -3
Amortisation & impairment of intangibles -765 -457 67
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Total operating expenses -20,510 -18,111 13

Operating profit 9,918 9,917 0
Share of profit in associates & J.V.s 1,556 1,187 31
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Profit before tax 11,474 11,104 3
Tax expense -1,712 -3,856 -56
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Profit for the period 9,762 7,248 35
Non-controlling interests 547 485 13
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Attributable to shareholders 9,215 6,763 36

*The three fair value items values are that of the net change in fair value which is allocated to the income statement.

[See Newslink: HSBC - expense cuts not straight to the bottom line
and
Newslink: HSBC Sells US retail branches to First Niagara ]