HSBC Falls on the (Mostly) Good News
NEW YORK (TheStreet) -- Shares of HSBC
HSBC is the world's second-largest bank, with $2.645 trillion in total assets as of June 30. The company on Monday announced first-half profit attributable to the parent company of $10.284 billion, or 54 cents a share, increasing from $8.438 billion or 29 cents a share, during the first half of 2012.
Profit before tax for the first half was $14.071 billion, increasing 10% from $12.737 billion a year earlier.
Net interest income declined to $17.819 billion during the first half from $19.376 billion during the first half of 2012, reflecting the difficult interest rate environment and asset sales, including the company's U.S. credit card portfolio, which was purchased by Capital One
Trading income, excluding net interest income from trading activities, rose to $5.230 billion during the first half, from $3.134 billion during the first half of 2012.
HSBC's loan impairment charges and other credit provisions totaled $3.116 billion during the first half, improving from $4.799 billion a year earlier. But the company also said it expected soon to enter a mediation process with the Federal Housing Finance Agency, to settle FHFA claims that HSBC misrepresented the quality of loans underlying private label mortgage-backed securities sold to Fannie Mae
Total operating expenses were down 13% to $18.399 billion during the first half, from $21.204 billion a year earlier. HSBC's cost efficiency ratio -- essentially the number of pennies of overhead expenses for each dollar of revenue -- dropped to 53.5% during the first half, from 57.5% during the first half of 2012. On a constant currency basis, and factoring out costs associated with "acquisitions, disposals and dilutions," the underlying cost efficiency ratio for the first half was 55.0%, improving from 62.1% a year earlier.
The company in its earnings press release attributed the expense reduction "mainly to the non-recurrence of provisions for fines and penalties recorded in 1H12 and lower charges from UK customer redress programmes and restructuring costs."
But the bank's decline in overhead expenses continued. HSBC CEO Stuart Gulliver in the press release said "During 1H13 we achieved US$0.8bn of sustainable cost savings across all regions, taking the annualised total to US$4.1bn since the start of 2011, exceeding our target for the end of 2013."
The company in May outlined a series of clearly defined actions for lowering expenses, including a new contract with a single facilities vendor to manage all of its facilities and replace previous contracts with 1,100 vendors. The company is also working on streamlining its internal reporting and reducing headcount. HSBC had roughly 259,400 full-time equivalent employees as of June 30, declining from 271,500 a year earlier.