LONDON — HSBC Holdings PLC on Monday reported a slight rise in full-year net profit, helped by its investment banking division and lower taxes, but bad-debt charges continued to rise and its Asian operations disappointed analysts.
"The HSBC figures are light," Nomura said in a note.
"The geographic breakdown of profits was similar to our expectations, apart from Asia ex-Hong Kong, which contributed $4.7 billion, against our $5.4 billion estimate and is essentially responsible for the lower group number than our estimate," it added.
The global bank, however, said impairment charges at its U.S. consumer finance run-off business are coming down, reflecting the portfolio's shrinking over time as loans mature, and after modifying more than 104,000 loans.
HSBC reported $26.49 billion in full-year impairments and credit-risk provisions, up from $24.94 billion in 2008, which it called "acceptable" given the severity of the global recession and the rise in unemployment in most developed markets.
"If economic and unemployment trends develop in line with our expectations, and in the absence of unforeseen events, loan impairment charges should decline in 2010," Chief Executive Officer Michael Geoghegan said in a statement.
On a reported basis, pretax profit was down 24% to $7.08 billion. The result included a $6.25 billion accounting charge from the rising value of its own debt, compared with a $6.68 billion gain for 2008.
Under accounting rules, banks can book non-cash gains when the value of their debt falls, as it theoretically needs less money to buy back its own debt. When markets recover, these gains are reversed into losses.
Net profit was $5.83 billion for the year ended Dec. 31, up from $5.73 billion a year ago, helped by a fall in tax expense to $385 million from $2.81 billion. The bank said the lower tax was a result of its focus on low-tax countries, while it reported a pretax loss in the U.S., where tax rates are higher.
The result was below analysts' expectations of $6.4 billion.
At 1133 GMT, HSBC shares were down 33 pence, or 4.6%, at 687 pence.
"The initial share-price performance has mirrored some mild disappointment with the numbers, which had been subject to high expectations," Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers, said.
Breaking it down by regions, HSBC said pretax profit from Europe was down 63% at $4 billion, while Hong Kong posted a 8% drop to $5.03 billion. The rest of Asia-Pacific reported a pretax profit of $4.2 billion, down 11%.
In North America, meanwhile, the pretax loss narrowed to $7.74 billion from $15.53 billion.
"Although improved financial and capital market conditions led to stronger results in wholesale markets, the impact of global recession on the banking industry was broad and deep," Geoghegan said.
"Risk appetite remained subdued, deleveraging continued and demand for credit was constrained."
The bank reported a fall in interest and fee incomes, but income from trading jumped to $6.24 billion from $847 million.
The bank said its global banking and markets had a pretax profit of $10.48 billion, up from $3.48 billion.
"These results are clear evidence of the success of our distinctive emerging markets-led, financing-focused strategy," HSBC said.
Thanks to its exposure to Asian economies, HSBC been able to report relatively better results in a time that U.K. peers continue to suffer from bad debt in recession-hit U.K.
Some of its worst impairment losses, as a percentage of loan books, however, were in the Middle East, where 2009 impairments rose nearly five-fold from 2008 due to a sharp decline in the construction and property sector.
In a conference call, Geoghegan said the bank still sees opportunities in the Middle East and that its exposure within the region is well spread.
The bright spot in the massive group impairment number was a 16% year-on-year drop in loan impairments within the U.S. consumer finance unit, which has been a sore point for the bank since the U.S. subprime mortgage and lending markets started to sour in late 2006.
HSBC, one of the first lenders to raise the alarm about the problems, went on to take tens of billions of dollars in impairment charges against the business, which it had bought in 2003.
HSBC said it will pay a 34 cents a share dividend for 2009, down from 93 cents a year ago. The dividend payout was higher than bonuses paid to staff, it added.
The bank paid GBP35 million in bonuses to its five highest-paid employees, while Geoghegan said he will donate to charity the GBP4 million he was awarded.
HSBC said its Core Tier 1 ratio stood at 9.4% at Dec. 31, up from 7% a year ago. It added it is "strongly capitalized" despite uncertainties surrounding regulatory changes expected for next year.