LONDON — HSBC Holdings PLC Monday posted a 2011 net profit of $16.8 billion, boosted by a strong commercial banking performance and accounting gains on its own debt that helped offset weaker investment banking returns.
HSBC said 2011 pretax profit was $21.9 billion, up 15% on 2010, when it made a $19 billion pretax profit. HSBC had reported a $13.2 billion net profit in 2010. Subtracting dividend payable on preference shares and coupon payable on capital securities, 2011 net profit was $16.2 billion, up from $12.7 billion and in line with analyst estimates.
The results, however, were dulled by a 24% fall in pretax profit at the group's investment banking division to $7 billion, hit by the effects of the euro-zone crisis. Costs also rose 10% on higher wages to staff in fast-growing emerging markets, restructuring costs and one-off payments that included a U.K bank levy.
Globally, most banks with large investment banking operations reported weaker results in those businesses for the fourth quarter as uncertain markets and the euro-zone crisis kept many customers on the sidelines. HSBC's underlying profit before tax--which strips out a number of one-time factors including acquisitions and fair value of own debt--was down 6% to $17.1 billion.
Those setbacks were in part offset by a strong performance of the group's commercial banking division, which lends money to businesses. The division saw pretax profits increase 31% to $7.9 billion, helped in part by booming demand for loans and other financial products in India and China, said Alan Keir, the global head of HSBC's commercial banking division.
So far, Keir told Dow Jones Newswires, 2012 "has started very well ... [In the commercial banking division] there has been a good performance across all markets." Despite growing demand, the group is unlikely to bolster the division by with any acquisitions, he said.
HSBC's results were also spurred by a $3.9 billion gain on the fair value of its own debt, after a small write-down the previous year. Banks are allowed to take gains based on the lower value their own debt, given that it would theoretically make it cheaper to repurchase.
HSBC is nine months into a major revamp of its global operations under Chief Executive Stuart Gulliver that includes around 30,000 job cuts, a retreat in some countries from retail banking and an effort to attract more wealthy customers. So far, it has disposed of its U.S. credit-card business and a 195-branch network in upstate New York, agreed to sell its Canadian retail brokerage, and exited retail banking in Russia, Chile and Poland.
Gulliver initiated a major revamp of HSBC's global operations in May. At the time, Gulliver said he wanted the bank to make a 12%-15% return on equity by 2013, and to cut its cost-to-income ratio to between 48%-52%. Gulliver told analysts Monday that a 12% RoE and 52% cost ratio are now the most likely outcomes.
"We remain focused on delivering our targets of a return on average shareholders' equity of 12-15% and a cost-efficiency ratio of 48-52% by the end of 2013," Gulliver said Monday. "By the end of 2012, we will have developed a clear trajectory towards meeting our target."
HSBC also said it will deliver savings at the "upper end" of its target of $2.5 billion to $3 billion by 2013.
The bank declared a fourth interim of dividend 14 cents a share, giving it a dividend of 41 cents a share for full-year 2011, up 14% on 2010.
Markus Huber at ETX Capital said the results were solid and beat his expectations. "All in all, the company seems to be well-placed for the years ahead, with fast-growing markets accounting now for almost half the HSBC's revenue," he said. He added that the only slight downside was the sharp increase in costs, although the banks says this is expected to improve in the coming year, with the cost-efficiency ratio expected to decline to a range of 48%-52% from 57.5%.
At 1300 GMT, shares in HSBC were down 21 pence, or 3.6%, at 554 pence in a lower day for U.K. financials. The shares were down 1.9% shortly before publication of the results at 0815 GMT.