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HSBC profits fall, warns over bank risk-taking

Banking giant HSBC said on Monday (4 August) that profits fell in the first half because one-off gains were not repeated and after a weaker showing at its investment arm.

LONDON: Banking giant HSBC said on Monday (4 August) that profits fell in the first half because one-off gains were not repeated and after a weaker showing at its investment arm. The Asia-focused lender meanwhile warned over the dangers of "risk aversion" by its bankers in the wake of industry-wide scandals.

Net profit dropped five percent to US$9.746 billion (S$12.14 billion) in the six months to June 30 compared with US$10.284 billion in the first half of 2013, the British bank said in a statement. Reported profit before tax dropped to US$12.3 billion as last year's first half benefited from higher gains from disposals and reclassification of HSBC's interest in China's Industrial Bank.

Pre-tax profit at HSBC's investment division dropped 12 percent to US$5.0 billion in the first half. HSBC chief executive Stuart Gulliver said that the bank's overall interim results "demonstrate the resilience" of its business model. "Whilst regulatory uncertainty persists, our balance sheet remains strong and our continuing ability to generate capital supports both growth and our progressive dividend policy," he added in the statement.

The lender is pushing on with its savings programme, having announced last year plans to cut costs by up to a further US$3.0 billion by 2016.

RISK-TAKERS

HSBC chairman Douglas Flint meanwhile used Monday's results statement to draw attention to another challenge - risk-taking by its bankers amid regulatory clampdowns and record fines for the sector.

"Greater focus on conduct and financial crime risks at all levels of the firm globally is clearly the right response to past shortcomings," said Flint. "There is, however, an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals... seek to protect themselves and the firm from future censure."

A month ago, French bank BNP Paribas pleaded guilty to US criminal charges of violating sanctions on Iran and Sudan for eight years and was fined a record US$8.9 billion. Banks have also been hit by billions of dollars of fines over rate-rigging scandals and a slew of new regulations after the onslaught of the global financial crisis revealed the scale of recklessness in global financial markets.

HSBC said on Monday that its underlying revenue fell 4.0 percent to US$31.36 billion in the first half, while operating expenses rose 2.0 percent to US$18.24 billion. "Against a backdrop of continuing low interest rates and reduced financial market volumes, HSBC produced a suitably well-balanced financial performance," said Flint.

"At a time of residual concerns over the sustainability of economic growth in many major markets and with heightened geopolitical tensions apparent, the board supported management's view that this was not the time to expand risk appetite to offset the effect of lower revenues," he added.

BANKS BOOSTED BY BES

Following the results, HSBC's share price climbed 1.60 percent to 639.4 pence on London's benchmark FTSE 100 index, which was up 0.49 percent at 6,711.81 points in afternoon deals.

Europe's banks won support on Monday from news of a Portuguese state rescue for Banco Espirito Santo (BES) worth US$6.6 billion, which traders said helped to remove some uncertainty from financial markets.

BES was in dire straits, after reporting a record loss last week on top of insolvency for its three holding companies amid allegations of accounting fraud.

Regarding HSBC, its "slight rise in operating expenses is partially due to increased investment in risk and compliance, an inevitable cost of doing business in the new banking world," noted Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

"HSBC has managed to maintain its universal banking model, both in terms of geography and business mix, which should position it well for future growth, particularly in its important Asian markets."

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