By Thomas Blott and Steve Slater
HONG KONG/LONDON, Nov 7 (IFR) - HSBC reported a sharp dropin third-quarter profits after a US$1.7bn writedown on the saleof its Brazil unit, but revenues in its investment bank rose 13%due to a strong showing in debt capital markets.
HSBC said on Monday adjusted pre-tax profit in its globalbanking and markets division rose to US$2.5bn in the thirdquarter from US$1.93bn a year earlier.
That was mainly due to strength in DCM globally and ratesand credit businesses in the wake of the uncertainty surroundingthe UK's decision to leave the European Union.
Chief Executive Stuart Gulliver said GBM's performance inOctober had been similar to September.
He said the bank had won market share in DCM and in ratesand credit in Europe, and also in global liquidity and cashmanagement.
HSBC set out plans last year to slash GBM's risk-weightedassets by US$140bn and cut costs, and Gulliver said the businesswas doing well but needed to cut more costs and assets to liftreturns in Europe and the US.
RWAs in the business were US$341bn at the end of September,down US$118bn from a year ago. The unit's return on riskweighted assets was 1.9% in the third quarter, well below HSBC'starget of 2.6% for 2017.
"There undoubtedly need to be further efficiencies to gain,but not significantly different from the programme alreadyembarked upon," Gulliver told reporters on a conference call.
"It's about relentless execution across a business modelthat has been in place for a number of years and is starting todifferentiate, in part because in places like Asia-Pacific andthe Middle East a lot of the competition has pulled away," hesaid.
Revenues from credit, rates and foreign exchange were$1.42bn in the third quarter, up 34% from a year ago, which wasbetter than its European rivals but slightly behind the growthof US rivals. HSBC's rates revenues jumped 51%, while FX was up4%.
HSBC had a bad quarter in equities, however, with revenuesdown 44% to US$187m, worse than a 7% decline across rivals.
The London-based bank reported a third-quarter pre-taxprofit of US$843m, down 86% from a year earlier. Adjustedpre-tax profit was up 7% to US$5.6bn, excluding one-off charges.
The bank's common equity capital ratio jumped to 13.9% from12.1% at the end of June, helped by a change in how UKregulators account for its 19.9% stake in China's Bank ofCommunications.
That removes concerns about HSBC's ability to sustain itsdividend and should see it extend its share buyback plan,analysts said. The capital jump helped drive a 4% rise in itsshares.
"For yield investors who have been the source of support forvaluation of this stock, this keeps the stock in the safety zoneinto the next 6-9 months," said Chirantan Barua, analyst atBernstein.
Analysts at Citigroup estimated the bank had a capitalsurplus of about US$8bn-$13bn, and upgraded their rating on thestock to "buy" from "neutral".
Asia remained HSBC's strongest region by far with pre-taxprofit in the region up 3% at US$3.7bn, helping to offset lossesin Europe and Latin America.
Since taking over as CEO nearly six years ago, Gulliver hasmade the bank's pivot towards Asia an integral part of hisstrategy, although some critics say the bank will struggle togenerate new business due to strong competition from Chinesebrokerage firms and slowing economic growth in the mainland. (Reporting by Thomas Blott in Hong Kong and Steve Slater inLondon)
HSBC Holdings (HSBA)