HSBC Reports 21% Increase in Pre-tax Profit, Amid Ongoing Asian Economic Crisis

Strategic Insights -

HSBC, a global banking group, has managed to emerge unscathed from the ongoing effects of the Asian economic crisis. The bank reported a 21% increase in pre-tax profit last year, reaching $7.89bn ( £4.9bn). This significant growth underlines the strength of HSBC's diversified operations, with 41% of pre-tax profit derived from Europe, mainly from its UK bank. The bank's core market, Hong Kong, accounted for 38% of the profit, while the rest of Asia contributed just 4.1%. Despite the depressed state of the region's economies, HSBC's transformation into a global organization has allowed it to adapt and thrive, despite a $2bn charge for bad and doubtful debts and undisclosed provisions for problem loans in China, Malaysia, and South Korea.

Key Takeaways:

  • HSBC reported a 21% increase in pre-tax profit last year, reaching $7.89bn (£4.9bn).
  • The bank's diversified operations contributed to its resilience, with 41% of pre-tax profit derived from Europe and 38% from its core market, Hong Kong.
  • The bank accounted for problem loans in China, Malaysia, and South Korea, but credit quality was improving slowly in the region.
  • HSBC's acquisition of Republic New York, a US private bank, was an active transaction during the year, with the integration proceeding well and minimal attrition of clients.
  • The bank took a $115m restructuring charge as a result of the purchase.
  • Analysts praised the results, with Tim Sykes from Credit Suisse First Boston stating, "For a bank that's gone through the Asian crisis they're quite good."
  • Simon Samuels from Salomon Smith Barney attributed the results to the bank's location, being caught between Hong Kong, which is "cyclically depressed", and the UK, which is "at the top of the banking cycle".
  • HSBC's investment bank enjoyed a strong year, reporting pre-tax profit of $793m, driven by global bull markets.
  • Pre-tax profit from its US operations was $959m, while its Latin American business hit $318m.

Statistics:

  • Pre-tax profit from Hong Kong operations rose 26% to $3.05bn.
  • HSBC's investment bank pre-tax profit was $793m.
  • Global bull markets drove the bank's pre-tax profit.
  • Pre-tax profit from US operations was $959m, accounting for 12% of global profit.
  • Latin American business hit pre-tax profit of $318m, representing 4% of global figure.
  • Earnings per share rose 20% to 65 cents.
  • A second interim dividend of 20.7 cents was declared, taking the total for the year to 34 cents, up 10% on 1998.

Sources:

  • "HSBC's resilience tested", Lex, Page 24 (no date specified)
  • Tim Sykes, Credit Suisse First Boston
  • Simon Samuels, Salomon Smith Barney