HSBC profits fall as bank bids to restore flagging revenues

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Bank giant HSBC has reported a 19% fall in profits for the first three months of 2017 as it bids to restore flagging revenues after a restructuring.

But the fall in profits to $5bn (£3.9bn) beat analysts’ forecasts, and HSBC’s shares rose 1.5% in Hong Kong.

The lower profits were due mainly to accounting changes, while the results last year included proceeds from the sale of its Brazilian business.

Chief executive Stuart Gulliver called the figures a “good set of results”.

Revenues for quarter rose to $12.84bn from $12.57bn, while adjusted pre-tax profit – which excludes one-off items – rose to $5.94bn from $5.3bn a year earlier.

The figures are the first since Europe’s largest bank announced the appointment of a new chairman in March. The move was part of a management overhaul that will also see HSBC choose a new chief executive.

Following a big drop in profits in 2015, HSBC embarked on a restructuring that led to thousands of job cuts, branch closures, asset sales, and a bigger focus on Asia.

Cost-cutting ‘on track’

Analyst Jackson Wong, from Huarong International Securities, said the figures showed a marked improvement.

“They cleaned up a lot of bad things in the last quarter of last year so this quarter, everything looks pretty decent, even the cost-cutting is on track,” he said.

Mr Gulliver said in Thursday’s statement that 2017 would see the completion of strategic measures announced in 2015, including the removal of low-return risky assets.

“Our cost-saving programme remains on track to hit the higher cost-saving target we announced at our annual results,” he added.

“Our pivot to Asia continues. We increased advances to customers and grew mortgages and business lending… all three of our North American businesses delivered material increases in profit before tax.”

Briton Mark Tucker, currently group chief executive and president of insurance group AIA, will take over as chairman from Douglas Flint in October.

One of Mr Tucker’s first jobs will be to lead the hunt for a replacement for Mr Gulliver, due to retire in 2018.

HSBC appoints AIA boss Mark Tucker as new chairman

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HSBC has appointed Mark Tucker, the chief executive of Asian insurer AIA, as group chairman.

Mr Tucker will take over on 1 October, succeeding Douglas Flint who has been in the role since 2010. The appointment breaks an HSBC tradition of appointing insiders to the chairmanship. One of his first jobs will be to find a replacement for Stuart Gulliver, the chief executive of HSBC, who plans to step down next year.

External perspective

While HSBC is Europe’s biggest bank, the bulk of its profits are generated in Asia. Mr Tucker has been chief executive of AIA for seven years, during which he oversaw the insurer’s expansion in Asia. Before AIA, he was the chief executive of insurance giant Prudential, and brings to HSBC his experience at the top of a UK financial giant as well as his Asian exposure. Richard Dunbar of Aberdeen Asset Management, told the BBC the bank has “obviously decided” that an external perspective would be useful to HSBC at this time. He added that while chief executive of Prudential, Mr Tucker did a good job of expanding its Asian assets, which are seen as the firm’s “jewel in the crown”.

HSBC has been through an overhaul in recent years in an attempt to reverse declining profits. Over the past six years it has cut more than 40,000 jobs and sold off businesses. Despite those efforts, profits tumbled more than 60% last year. The banking industry has been hampered by the extended period of very low interest rates, which makes lending money less profitable. For HSBC, that problem has been compounded by its move into less risky areas of banking since the financial crisis which started in 2007. Those challenges make the appointment of a new chief executive even more crucial for investors, a search which will now be led by Mr Tucker.

Reputation revamp

HSBC has also been attempting to repair its image after a series of scandals. Earlier this year it reached a $470m (£325m) settlement with the US government and states related to dubious mortgage lending and foreclosure practices during the financial crisis. In 2015 Mr Gulliver and Mr Flint apologised for “unacceptable” practices at its Swiss private bank which helped clients to avoid tax. In late 2012 HSBC paid US authorities $1.9bn in a settlement over money laundering. AIA said that Ng Keng Hooi, would take over as chief executive from 1 September.

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