HSBC punished after City takes fright on banks

HSBC shares got smacked today after the giant bank unnerved the City with a glum set of results and stark warnings about what the future could hold.

Britain’s, and Europe’s, biggest bank saw profits crash 62% to $7 billion (£5.6 billion) in 2016, with the last quarter of the year particularly bad.

Kicking off a week of banks reporting, HSBC said a string of one-off charges had hit returns, and insisted that without them, the results were respectable.

The City, expecting to see strong results from banks this week, took a different view and the shares fell more than 6%, off 45.8p, at 666.5p, wiping £9 billion off its value.

Ian Gordon at Investec Securities told clients to sell the shares and described the figures as a “very grim reality”. Falling revenue “drowns out” any likely boost from a rise in interest rates, warned Gordon.

HSBC said it would spend $1 billion on share buybacks this year, far less than analysts had expected.

The bank took an axe to executive pay for last year in recognition that HSBC had a tough year.

Pay was cut by $12 million for “certain individuals” to “reflect their involvement in certain notable events and individual transgressions”.

As a giant bank, HSBC faces regulatory issues around the globe.

Of note in the results was the admission that the lender “is subject to an investigation by the FCA [Financial Conduct Authority] into compliance with UK monetary-laundering investigations and financial crime systems and control requirements”.

The fall in profits was due to a writedown in the value of HSBC’s private banking arm and other items such as the sale of the Brazilian business.

Chief executive Stuart Gulliver said: “There is nothing fundamentally wrong with the numbers.” He thinks the City will strike a more positive note once it has had more time to digest the figures. HSBC admitted to some alarm about the rise of US President Donald Trump and his threats to put American companies first.

Gulliver added: “The protectionist stance is clearly a negative for us. Clearly we are free-traders. The risk is a trade war with China.”

The bank was more positive about the prospects for London, repeating that it will move only 1000 staff out of the UK in the wake of the Brexit vote.

“For context, we employ 43,000 in the UK. Once we leave the EU, we will employ 42,000,” said Gulliver.

HSBC says it will increase its cost cutting to protect the dividend and cope with falling income.

Revenues for 2016 were $48 billion, down from $60 billion in 2015 and $61 billion in 2014.

Neil Wilson at ETX Capital said: “At the start of bank earnings season, it’s not a great start for financials and it’s helped send Lloyds, Barclays and RBS lower on expectations they too will report earnings below forecasts. We’re shaping up for better news from Lloyds, but RBS is unlikely to deliver anything terribly positive. The rally in UK banking stocks since Brexit may be coming to an end.”