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LONDON (Alliance News) - HSBC Holdings' annual results have left the market underwhelmed Monday as the banking giant missed expectations with a 17% drop in annual pretax profit as numerous fines, settlements and provisions for customer compensation took their toll on earnings.
HSBC, which is the largest London-listed bank by market capitalisation, said it made an USD18.68 billion pretax profit in 2014, compared with USD22.57 billion in 2013. According to consensus estimates compiled by the company, financial analysts had expected HSBC to report a pretax profit of USD20.95 billion.
While the holding company's commercial banking business reported an increase in pretax profit to USD8.74 billion from USD8.44 billion on the back of growth in its home markets of Hong Kong and the UK, its global banking and markets investment banking business reported a 38% drop to USD5.89 billion due to a weak fourth quarter for the industry as a whole.
The retail banking and wealth management division reported a 15% fall to USD5.65 billion. Meanwhile, the private banking division's pretax profit rose to USD626 million from USD193 million.
Operating expenses swelled to USD41.25 billion from USD38.56 billion, driven by the USD1.19 billion of settlements and provisions made in connection with authorities' investigations into alleged manipulation of the foreign exchange market, including USD809 million in the fourth quarter.
"Profits disappointed, although a tough fourth quarter masked some of the progress made over the preceding three quarters. Many of the challenging aspects of the fourth quarter results were common to the industry as a whole. In spite of this, there were a number of encouraging signs, particularly in commercial banking, payments and cash management and renminbi products and services. We were also able to continue to grow the dividend," Chief Executive Stuart Gulliver said.
Chairman Douglas Flint weighed in on what he called a "very broad range of uncertainties and challenges" that await in 2015, most of which he thinks are outside the banking group's control. However, he highlighted the question of whether the UK will remain a member of the EU as a particular concern for HSBC.
Monday's results statement included an apology by Flint, who said the disclosures around the Swiss private bank's "unacceptable historical practices" are a reminder of how important it is to show "constant vigilance" over its controls and compliance.
HSBC has kicked off the UK bank earnings season, with Royal Bank of Scotland reporting on Thursday and Lloyds banking Group on Friday. Standard Chartered follows next week.
The UK government has sold a further GBP500 million of Lloyds Banking Group shares under the trading plan launched in December last year, meaning its stake in the lender has been reduced to 23.9%.
All shares sold through the trading plan have been sold above the average price the previous government paid for them, which was 73.6 pence, the government said.
Howard Davies is set to become the next chairman of The Royal Bank of Scotland Group, replacing outgoing Chairman Philip Hampton, the Financial Times reported on Monday. Davies, the former head of the Financial Services Authority, is expected to take on the role over the summer, the FT said, citing three people familiar with RBS's plans. An announcement may be made as early as this week, when the bank is due to publish its full-year results.
Davies is currently the chairman of insurance group Phoenix Group Holdings and is the head of the government's Airports Commission, the body responsible for making a recommendation on boosting the UK's airport capacity.
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Markets: UK shares trade mixed, as investors wait for Greece to submit a final detailed list of economic reform proposals to its European creditors, while HSBC Holdings, the biggest faller in the FTSE 100, hindered the blue-chip index from reaching a record high. The euro weakened against the dollar, after data showed that German business confidence rose less than expected in February.
Wall Street is set for a lower start, with stock futures indicating that the DJIA will open down 0.2%, the S&P 500 down 0.3% and the Nasdaq 100 down 0.1%.
FTSE 100: down 0.4% at 6,889.06
FTSE 250: down 0.3% at 17,079.18
AIM ALL-SHARE: up 0.2% at 712.47
GBP-USD: down at 1.5358
EUR-USD: down at 1.1311
GOLD: down at USD1,195.38 an ounce
OIL (Brent): down at USD59.19 a barrel
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Top Corporate News
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Bunzl raised its dividend for a 22nd consecutive year after reporting higher 2014 earnings on the back of a further 17 acquisitions, and said it expects further earnings growth in 2015 as it announced two further deals. It said it spent GBP211 million on the 17 acquisitions it made in 2014, as it also snapped up a Spanish healthcare products company with annual revenue of EUR18 million and a Canadian cleaning and hygiene supplier with annual revenue of CAD12 million. The acquisitions it made in 2014 helped lift pretax profit to GBP299.8 million, from GBP289.9 million in 2013, as revenue rose to GBP6.16 billion, from GBP6.10 billion. Bunzl raised its total dividend for 2014 to 35.5 pence, from 32.4p.
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Associated British Foods said it is still expecting a "marginal decline" in adjusted earnings per share for the full year, following lower profit in the half year to February 28, as declining profit in its sugar business and the strong pound more than offset growth from its Primark retail chain. In a trading update, the group said its adjusted operating profit for the first half is expected to be lower than last year's GBP497 million, while adjusted first half earnings per share is expected to be in line with last year's 45.8 pence per share, largely benefiting from a lower tax rate. "Primark has performed well and its expansion is continuing, Grocery is expected to deliver a first half operating profit in line with last year, and Ingredients and Agriculture have made excellent progress in operating profit building on their very positive performances last year. As previously indicated, profitability at AB Sugar will be substantially lower," the company said.
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Antofagasta lowered its cash cost guidance for 2015 by about 10 cents a pound, bringing it in line with its cash costs in 2014, saying that input costs were now more favourable. The copper and gold miner said it now expects net cash costs for 2015 to be USD1.40 per pound thanks to lower oil prices and the drop in the Chilean peso.
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A trade union representing workers at Aer Lingus Group has changed its stance and said it will now back the takeover bid for the Irish carrier by International Consolidated Airlines Group, Reuters reported. The Aer Lingus Central Representative Council, a group of staff representatives of the company's trade unions, said last month the proposed EUR1.36 billion takeover by IAG could have a major impact on the workforce at the Irish company and lead to up to 1,200 job cuts. But the group said it has now reversed this view after Willie Walsh, the chief executive of IAG, told a parliamentary committee that job cuts would be minimal and would be more than offset by new roles created by the expansion of Aer Lingus' fleet.
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Old Mutual said its South African banking subsidiary Nedbank Group Ltd posted higher earnings and raised its dividend in 2014, driven by net interest income growth and a lower credit loss ratio. Nedbank's headline earnings rose 14.0% to SAR9.88 billion, as net interest income rose 8.2% to SAR22.96 billion, and impairments decreased 19.0% to SAR4.51 billion. The South African business raised its full-year dividend by 14.9% to 1.028 cents.
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Veterinary pharmaceutical business Dechra Pharmaceuticals raised its interim dividend as it posted a rise in pretax profit for its first half. Dechra proposed an interim dividend of 5.12 pence, up from 4.75 pence a year before. In the half year to end December 2014, the company posted a pretax profit of GBP12.6 million, up from GBP10.3 million a year before, as revenue rose 5.2% to GBP100.9 million from GBP95.9 million. At constant currency, revenue would have been up 11%, Dechra said.
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DS Smith said it is trading in line with expectations as it announced a EUR300 million deal to buy European corrugated board packaging company Duropack. The packaging company said trading in the three months to the end of January, its financial third quarter, was in line with its expectations. The group also said it has completed the disposal of its testliner mill in France and will take a GBP9 million exceptional charge on the sale.
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Engineering company Keller Group said it has won a contract to work on the construction of the Koralm railway line between Graz and Klagenfurt in southern Austria. The value of the work awarded to Keller is EUR31.2 million and will involve jet grouting, bored piling and anchor works as part of the soil preparation work being undertaken for the project.
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Balfour Beatty said its Gammon Construction joint venture has won a HKD3.2 billion contract to build a residential development in Hong Kong. The project, based in Tsuen Wan, will include the construction of seven residential towers along with retail and recreational facilities, the construction and support services company said.
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Ladbrokes is set to announce later this week that it will close around 50 betting shops as the group faces the twin challenges of tax rises and regulation, The Sunday Times reports. The company is expected to outline the plans at its full-year results presentation on Thursday, bringing the total number of closures by Ladbrokes and rivals William Hill PLC and Gala Coral Group Ltd in the past year to more than 200, the paper said.
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DFS Furniture priced its upcoming initial public offering at 245 pence to 310 pence per share, giving it a market capitalisation of approximately GBP585 million at the mid-range of the guidance. The furniture retailer said it will raise GBP98 million in the flotation, slightly below the GBP105 million it said it would seek to raise when it announce plans for the IPO earlier this month. It will use the proceeds to pay down its debt and to cover the transaction fees.
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AIM Movers
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Quindell shares have risen by more than a quarter after it extended the exclusivity period for its discussions with Slater & Gordon Ltd regarding the disposal of its professional services division to March 31. It said that the discussions continue but the indicative terms being discussed with the law firm for the division "would imply a significant premium to the company's market capitalisation" on Friday. Alexander Mining is also up by a quarter after it signed heads of agreement with Compass Resources Ltd for an AmmLeach licence, along with technical and management services. Clear Leisure is doing well after it agreed a deal to sell the Altinak Sarl vehicle, which controls the share capital of the Hospitality & Leisure Fund, for EUR500,000. The company said the realisation on the sale significantly exceeds the funds owed to its short-term creditors, including the sum demanded last week by Westhouse Securities Ltd. Nature Group is up after it signed a deal to sell a waste water collection and storage vessel for GBP1.8 million. It said the sale of M/V Crystalwater would result in a positive net cash flow for the company in the first quarter. Oracle Coalfields is also up after it said the mining lease for Block VI of the Thar coalfield in Pakistan has been restored. Tower Resources shares are down by a third following the closure of the Badada-1 exploration well in Kenya. Tower Resources has a 15% stake in the well. PeerTV is another faller after it issued just short of 7.75 million new shares, 2.99 million of which relate to its recent convertible loan facility deal with YA Global Master SPV Ltd. Stratex International is down after it said heavy rains had delayed key parts of the construction project at the Altintepe gold project in northern Turkey and completion is now scheduled for late May, while its environmental approval for the site is also being challenged.
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Other Top Economics And General
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Greece's SYRIZA-led government is expected to submit a detailed list of economic reform proposals to its international creditors on Monday as it seeks to secure a four-month extension of its bailout. "We are discussing with our partners to ensure that the list is accepted. We hope that there are no complications," said government spokesman Gabriel Sakellarides, without providing further details. The proposed Greek reforms are believed to include privatizations and structural reforms in taxation and in the public sector. The idea is to raise revenue by combating tax evasion, corruption and streamlining its civil service, according to Greek sources. The measures will also outline debt relief to distressed Greeks most affected by the crisis.
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A measure of German business confidence rose less-than-expected in February, reports said, citing the results of a key survey. The Ifo business climate index climbed to 106.8 in February, while it was expected to rise to 107.6. In January, the score was 106.7. Meanwhile, the current conditions index of the survey unexpectedly fell to 111.3, while it was expected to rise to 112.7. In January's, the reading was 111.7.
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The members of the Bank of Japan's monetary policy committee believe that the pace of the country's economic recovery remains moderate, minutes from the bank's policy meeting on January 20 and 21 revealed. They also noted that capital spending was on the upswing as corporate profits continued to grow. The members did concede that they were likely to miss their desired inflation target of 2% following years of deflation - due mainly to tumbling energy prices. Citing lower crude oil prices, the BoJ downgraded its core inflation estimate for fiscal 2015 to 1% from 1.7%. But the central bank lifted the forecast for fiscal 2016 to 2.2% from 2.1%.
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A bombing at a pro-government demonstration Sunday in which at least two people were killed marred weekend advances on a peace plan for eastern Ukraine. At least nine people were injured by the nail-packed bomb in the eastern city of Kharkiv during a memorial event for Ukrainian soldiers killed fighting pro-Russian rebels. The Interior Ministry called it was a terrorist attack and dispatched special forces to Kharkiv.
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US Secretary of State John Kerry and his British counterpart discussed the crisis in Ukraine and possible new sanctions against Russia on Saturday. Russia's actions were "simply unacceptable" and an agreement was likely on a new round of sanctions, Kerry said. British Foreign Secretary Philip Hammond urged strong US-EU cooperation against Russia's "continued aggression." Kerry said he "covered a variety of key topics" with Hammond, including Ukraine and Iran.
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Afternoon Watchlist (all times in GMT)
13:30 US Chicago Fed National Activity Index
15:00 US Existing Home Sales
15:30 US Dallas Fed Manufacturing Business Index
23:50 Japan Corporate Service Price
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Tuesday's Key UK Corporate Events
Development Securities - Trading Statement
Temple Bar Investment Trust - Full Year Results
Town Centre Securities - Half Year Results
Ashmore Group - Half Year Results
BHP Billiton at 0830 AEDT - Half Year Results
Provident Financial - Full Year Results
Persimmon - Full Year Results
Croda International - Full Year Results
Drax Group - Full Year Results
GKN - Full Year Results
Meggitt - Full Year Results
Mondi - Full Year Results
New World Resources - Full Year Results
Green REIT - Half Year Results
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Tuesday's Key Economic Events (all times in GMT)
All Day China Chinese New Year
07:00 Germany Gross Domestic Product
07:45 France Business Climate
10:00 EU Consumer Price Index
13:55 US Redbook index
14:00 EU ECB President Draghi's Speech
14:00 US S&P/Case-Shiller Home Price Indices
14:45 US Markit Services PMI Preliminary
14:45 US Markit PMI Composite Preliminary
15:00 US Consumer Confidence
15:00 US Fed's Yellen testifies
15:00 US Richmond Fed Manufacturing Index
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