World Economy

HSBC Net Profit Falls 82%

HSBC Net Profit Falls 82%HSBC Net Profit Falls 82%

HSBC reported a steep drop in its annual net profit of 82% in 2016. The London-based bank blamed “unexpected economic and political events” for the slump. 

Europe’s biggest bank’s net profit for 2016 of $2.48 billion compared with $13.52 billion in 2015—a drop of 82%, DW reported.

In the most recent quarter, the bank had a $3.45 billion pre-tax loss. HSBC’s annual revenue fell 18.5% to $48 billion.

HSBC chairman Douglas Flint said that geopolitical changes in the past year had contributed to “volatile financial market conditions”.

“We highlight the threat of populism impacting policy choices in upcoming European elections, possible protectionist measures from the new US administration impacting global trade, uncertainties facing the UK and the EU as they enter Brexit negotiations,” Flint said in his statement, which was filed to the Hong Kong stock exchange.

In 2015, HSBC (Hongkong and Shanghai Banking Corporation) announced a major overhaul to cut costs, getting rid of 50,000 jobs worldwide and departing from unprofitable businesses. The bank also shifted its focus to Asia.

However, it also made headlines last year for being part of a cartel fined by the EU Commission for rigging the Euribor rate. In the past, the bank has been embroiled in a lawsuit for failing to apply money laundering controls, to the benefit of drug cartels in Mexico. HSBC warned that it expected further uncertainty this year.

 Brexit Looms Large

Flint stressed the impact of the UK’s impending exit from the European Union, reaffirming that “current contingency planning suggests we may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop.” 

The staff that would be moved to Paris is accredited with generating about 20% of HSBC’s overall revenue.

Other banks have also been struggling to maintain profits under the long shadow cast by the negotiations, as fears of a “hard Brexit” manifesting have only been strengthened by UK Prime Minister Theresa May’s recent comments. US bank JP Morgan is expected to shift 4,000 employees away from its offices in the UK, according to a recent report on CNN Money.

 Battling Decline

Chief Executive Officer Stuart Gulliver is battling five years of declining revenue as he pares back HSBC’s sprawling global footprint and reduces expenses. The bank increased its cost-cutting target by $1 billion to $6 billion of savings, while saying it faces more than $3 billion of revenue headwinds in 2017, including currency movements and record-low interest rates in the UK, Bloomberg reported.

“The miss was chiefly driven by lower revenues,” including in wealth management, analysts at Goldman Sachs Group Inc. said in a note to clients. “Investor focus will be on HSBC’s revenue outlook.”

HSBC will spend $1 billion buying back its stock in the first half of this year, adding to $2.5 billion of repurchases it made last year as capital was freed up from the sale of its Brazil unit. Gulliver said in a telephone interview that the firm may do additional repurchases this year, and the Goldman Sachs analysts boosted their forecast to $3.5 billion of buybacks in 2017.

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