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HSBC profits higher on cost-cutting, favourable markets

HSBC's profits rose in the first half of the year as it slashed costs and won support from favourable market conditions, the banking giant said Monday

Net profit jumped 10 percent to almost $7.0 billion (7.8 billion euros) in the first six months of the year compared to the first half of 2016, the group said in an earnings statement.

Pre-tax profit for the six months rose five percent to $10.2 billion.

Outgoing chairman Douglas Flint described the performance as “extremely pleasing” — coming after a turbulent 2016 that resulted in huge writedowns and restructuring costs for the London-headquartered bank as it laid off thousands of staff.

The Asia-focused giant has been on a recovery drive over the past two years, streamlining its operations and exiting unprofitable businesses.

Like many global banks it has struggled to boost profits as China’s economy slows and uncertainty caused by Britain’s looming exit from the European Union casts a shadow over the sector.

In addition, HSBC has grappled with stricter capital rules, low interest rates despite fresh tightening — and scandals stemming from its own misbehaviour.

However following Monday’s results, chief executive Stuart Gulliver expressed confidence in the outlook despite strains including Brexit uncertainty.

“There is still engines for growth if you believe in the long term story of China, Asia-Pacific, the ASEAN, the Middle East,” he told a conference call.

“There is still further upside and actually we’re still probably at the beginning of a (rate) tightening cycle,” he said.

Higher interest rates are good for banks as it leads to increased returns on the interest they make from products including home mortgages and credit card purchases.

HSBC also benefitted in the first half from improving performances on global markets, including record-highs for indices on Wall Street.

“Markets-based revenues benefited… commercial banking customer activity was robust, wealth management and insurance revenues were notably stronger in Hong Kong, and credit experience globally remained remarkably sound,” HSBC said in its earnings release.

“As central bank interest rates edged higher, led by the US, we began to benefit from improved margins on our core deposit bases, providing a welcome enhancement to the group’s revenue mix,” the lender added.

– Share buyback –

HSBC also announced Monday a share buyback of up to $2 billion, expected to be completed in the second half of the year — helping its share price to rise 2.0 percent to 758.80 pence in London afternoon deals.

In Hong Kong, its shares closed up 2.62 percent at HK$78.45 ($10.06).

“HSBC’s earnings are definitely better than market expectations,” said Dickie Wong of Hong Kong-based Kingston Securities.

He described the bank as being in “very good shape” after wide-ranging restructuring programmes.

The half-year results showed operating expenses dropped 12 percent to $16.4 billion, partly stemming from a sell-off of its Brazil operations.

Flint said there were still uncertainties owing to increasing geopolitical tensions and “ambiguous predictions” around Britain’s future relationship with the EU post-Brexit, but described HSBC’s performance as resilient.

In his last statement as chairman before stepping down in October 2017, Flint warned over the the possible repercussions of the Brexit deal.

Gulliver added there was still a risk that HSBC may need to relocate some jobs out of London over Britain’s EU departure.

“Certain activities that have to be done under the EU law will be unlawful to do from the UK,” he told a conference call.

“That’s the up to 1,000 jobs that we would move to France” to protect a potential loss of revenue totalling about $1.0 billion.

The bank also announced Monday that British national Mark Tucker, chief executive of insurance group AIA, will replace Flint as chairman.

It is part of a management overhaul that will see the bank also choose a new chief executive to replace Gulliver, who is expected to leave in 2018.

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