LONDON - HSBC Holdings PLC said first-half profits rose a higher-than-expected 31% as it set aside less money for problem loans in Hong Kong and made more from services for rich people.
Net income at Europe's top bank by market value rose to $3.53 billion, or 41 cents a share, from $2.69 billion, or 33 cents a share, in the first half of 1999.
That compares with an average estimate of 35.9 cents a share from seven analysts surveyed by Bloomberg News.
"There are no estimates on the Street for the next two years high enough," said Christopher Burn, a money manager in Singapore at MFS Investment Management, which oversees $150 billion globally, including HSBC shares. "They're showing steady growth in Europe. The Republic New York Corp. acquisition is doing better than expected, and analysts have underestimated the economic rebound in Asia."
HSBC has been the best-performing U.K. bank stock this year, up 4.7%, after the purchase of Republic in 1999 doubled its private banking business and made it less reliant on volatile, developing economies.
Still, HSBC faces sluggish demand for loans and falling profit margins in Hong Kong. It has been forced to slash home loan prices in the United Kingdom, where it ranks No. 12 in mortgage lending and lags smaller rivals in signing up online customers.
Its shares rose 2.1% Monday, in London trading, to their highest close at least since HSBC bought Midland Bank in 1992.
HSBC bought the late Edmond Safra's Republic New York Corp. and its European affiliates for $9.85 billion, giving it 30,000 wealthy clients and making it the third-largest retail bank in New York state. That helped boost net interest income in Europe 14%, to $2.4 billion, and net interest income in North America 29%, to $1.1 billion.
These figures reflect the merits of the Republic acquisition, analysts said. The deal nearly foundered but was renegotiated last fall after Japanese regulators alleged that Republic was involved in a $1 billion fraud by one of its clients, Princeton Economics International Inc.
HSBC's private bank, one of the top five in the world, is trying to win more business from the seven million people worldwide who have more than $1 million of assets each. They are estimated to have total assets of $25.5 trillion. Private banks earn, on average, about 1% of assets under management from fees for selling funds, trading stocks and bonds, and keeping track of investments.
In all, HSBC has $239 billion under management; its private banking funds alone have risen by $103 billion from the year earlier.