HSBC Q3 pre-tax profit up 32% on lower regulatory costs, beats estimates

(Reuters) - HSBC reported a better than expected 32% rise in pretax profit for the third quarter, with a drop in fines for past misconduct countering the impact of a slowdown in Asia and a jump in spending on regulatory compliance.

Costs related to fines and compensation for customers fell by $1.4 billion from the third quarter of last year, marking its progress on conduct issues that have marred recent quarterly earnings reports.

Yet the London-based lender continues to grapple with declining revenue and also reported that it spent $2.2 billion on regulation and compliance in the first nine months of the year, up 33% year on year, even as the British government looks to take a more accommodative stance towards the industry.

Underlying revenue fell 4% to $15.1 billion compared with the same quarter last year, as plunging stock markets and slowing economic growth hit its business in Asia.

“HSBC management have done a very good job of trying to correct its internal problems, but these results show no bank can improve revenues if the global economy is against it,” said Jim Antos, analyst at Mizuho Securities Asia in Hong Kong.

The bank reported a profit of $6.1 billion for the three months to the end of Sept. 30, up from $4.6 billion. That was more than the consensus estimate of $5.2 billion, based on the average of analysts’ forecasts compiled by the bank.

Adjusted profit for the quarter fell 14% from a year ago to $5.5 billion, taking into account the lower fines and a gain from the sale of its stake in Industrial Bank.

HSBC’s London shares were down 0.6% at 504 pence by 0810 GMT, broadly in line with a weaker European bank index .

The shares are down 17% this year -- hurt by concerns about slowing Asian growth -- compared with a 2% rise for the European banking sector.

GOALS PROGRESS

HSBC said there had been “no visible impact” on credit quality in Asia, with losses from bad loans coming in lower than analysts had expected.

The earnings update gave investors a first chance to check on progress on the 10 goals HSBC management had set in June, including a 25% reduction to risk-weighted assets, the sale of operations in Turkey and Brazil and $4.5 billion to $5 billion in cost cuts.

Pedestrians walk past a HSBC sign in Hong Kong on yesterday HSBC saw pre-tax profit surge 32% year on year in the third quarter the banking giant announced, but revenue dropped in the wake of Asian market volatility - AFP

HSBC said it was nearly 30% of the way towards completing the reduction in its assets and achieved $400 million of cost savings in the quarter.

That helped the bank improve its common equity capital ratio to 11.8% at the end of September, from 11.6% three months earlier.

Perhaps the most-watched of the ten goals by investors is the bank’s strategic review into whether it should move its headquarters out of Britain, with Hong Kong viewed as the most likely destination.

HSBC said it had made progress on this but the decision could slip beyond its original year-end deadline, echoing comments made by Chief Executive Stuart Gulliver in October.