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 Earnings from Europe's biggest lender on Monday reflected the cost
of past misconduct and protecting itself against the impact of
further scandals. HSBC said allegations about its Swiss operations
had badly damaged its image.
"A number of us think the practices of the private bank in the past
are a source of shame and reputational damage to HSBC. I think shame
would be a reasonable noun to use," Chief Executive Stuart Gulliver
told reporters.
Gulliver was himself thrust into the center of the scandal on Sunday
when Britain's Guardian newspaper said he had sheltered millions of
pounds in HSBC's Swiss private bank via a Panamanian company.
HSBC confirmed that Gulliver has a Swiss bank account and while
there is no suggestion he broke any rules, the revelations come at a
sensitive time. HSBC's chairman Douglas Flint is due to appear
before British lawmakers on Wednesday to answer questions about the
bank's alleged complicity in tax evasion.
Gulliver is among the best paid bank executives in Europe with a pay
packet last year amounting to 7.6 million pounds ($11.7 million)
down from 8 million in 2013 after his bonus was cut to reflect the
bank's failure to stamp out misconduct.
HSBC reported pretax profit of $18.7 billion for 2014, down from
$22.6 billion the year before and below the average analyst forecast
of $21 billion, after it was hit by higher costs and a series of
provisions for misdeeds, including attempted manipulation of foreign
exchange markets.
Shares in the bank fell nearly 6 percent, their biggest intra-day
drop since November 2011, to hit a near 2-1/2 year low. At 1040 GMT
they traded 5.6 percent lower.
"When the first paragraph of your report cites ‘significant items
including fines, settlements and UK customer redress’ impacting
revenues and costs, it certainly doesn’t bode well for the rest of
the report," said Augustin Eden, analyst at Accendo Markets.
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RETURN ON EQUITY
Gulliver, appointed CEO in 2011, has sold or closed 77 businesses
and axed over 50,000 jobs to try and simplify HSBC's sprawling
business and boost earnings after higher capital requirements
imposed since the financial crisis make it more difficult for large
banks to make a profit.
The higher capital reserves mean that HSBC is cutting its target for
return on equity (RoE) to more than 10 percent in the next 3-5 years
from 12-15 percent, originally set in 2011.
RoE, a measure of how well shareholders' funds are used to turn a
profit, fell to 7.3 percent in 2014 from 9.2 percent in 2013.
Before the higher capital costs imposed during the crisis, RoEs well
in excess of 10 percent were normal for large banks.
Underlying operating expenses were $37.9 billion in 2014, up 6.1
percent from the year before, showing the struggle Gulliver is
having to lower costs in the face of tougher regulation and the need
for more compliance staff. That continues to depress returns.
($1 = 0.6507 pounds)
(Additional reporting by Tricia Wright and Vikram Subhedar. Writing
by Carmel Crimmins; Editing by Keith Weir)
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