HSBC Profits Dive on Charges to Cover Possible Fines

HSBC Holdings PLC (NYSE: HBC) reported third-quarter 2012 earnings this morning in London. The banking and financial services firm posted adjusted earnings per share (EPS) of $0.13 on revenues of $48.98 billion. In the same period a year ago, the company reported adjusted EPS of $0.28 on revenues of $44.76 billion. Thomson Reuters had no quarterly estimates available for the British-based bank, but for the fiscal year ending in December the estimates call for EPS of $5.54 on revenue of $70.36 billion.

On what it calls a profit before tax basis, the bank reported earnings of $16.2 billion compared with $18.63 billion in the third quarter a year ago. On an "underlying" (adjusted) basis, profit rose $2.8 billion to $5 billion in the quarter.

The company's CEO said:

The increase in underlying profit was driven by revenue growth in Global Banking and Markets, mainly in Rates and Credit as conditions in the eurozone stabilised relative to 3Q11, and in Commercial Banking, where net interest income rose, reflecting higher average lending and deposit balances. We continued to grow in a majority of our priority markets. In addition, loan impairment charges reduced significantly compared with 3Q11, mainly in North America.

Third quarter results include an $800 million provision related to an ongoing investigation of money-laundering charges in the United States and Mexico. The bank also took $1.3 billion in charges related to "mis-sold" interest rate swaps and other derivatives. As the CEO noted in the bank's press release:

The US authorities have substantial discretion in deciding exactly how to resolve this matter. Indeed, the final amount of the financial penalties could be higher, possibly significantly higher, than the amount accrued.

Lloyd's Banking Group PLC (NYSE: LYG), another of London's big four banks, has already set aside nearly $6.9 billion to pay for "mis-selling" payment protection insurance. And on Friday, Barclays PLC (NYSE: BCS) revealed it was being investigated again by British regulators for the way the bank disclosed it fee payments related to bond and share issuances in 2008. That followed by a few days a software problem at Royal Bank of Scotland Group PLC (NYSE: RBS) that shut down its payment processing system. Not a good week or two for British banks.

HSBC's shares are trading down about 1.2% in premarket trading at $49.27 in a 52-week range of $35.72 to $50.46. The consensus target price for the shares was around $43.30 before today's report.

Paul Ausick


Filed under: 24/7 Wall St. Wire, Banking & Finance, Earnings, International Markets Tagged: BCS, HBC, LYG, RBS

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