HSBC profit gains mask bank sector headwinds

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HSBC net profit jumped in the third quarter on an accounting gain but its underlying earnings slumped as chief executive Stuart Gulliver warned of "significant headwinds" for the banking sector.

Europe's biggest bank said profit after tax surged 66 percent to $5.22 billion (3.79 billion euros) in the three months to September, reflecting a revaluation of its debt, compared with year-earlier $3.15 billion.

Underlying pretax profits tumbled 35 percent to $3.0 billion as revenues dropped and the bank's bad loans rose in the United States.

"The (banking) sector faces significant headwinds," HSBC chief executive Stuart Gulliver said in a statement.

"The continuing macroeconomic, regulatory and political uncertainty, particularly in Europe, adversely affected our industry's performance in the quarter ... Against this backdrop, HSBC remains resilient, with a strong balance sheet and robust liquidity," he said.

HSBC said that its exposure to the debt of weak eurozone states Greece, Ireland, Italy, Portugal and Spain stood at $5.5 billion at the end of the third quarter, down from $8.2 billion on June 30.

The bank's share price slumped 5.25 percent to 509 pence in midday trade on London's FTSE 100 index, which was down 1.53 percent to 5,483.27 points -- although equities were down across the board on eurozone debt worries.

HSBC said its core Tier One capital ratio hit 10.6 percent by the end of the third quarter -- above the 9.0 percent now demanded by regulators.

To prevent a repeat of the 2008-2009 financial crisis when governments were forced to bail out banks, regulators agreed in 2010 on Basel III rules requiring lenders to strengthen their capital reserves to 7.0 percent.

In addition, regulators decided in 2011 to impose additional rules on the world's biggest banks, by asking them to hold 1.0 to 2.5 percentage points more in core reserves, on top of the 7.0 percent required for all banks.

HSBC, meanwhile, is undergoing major changes under Gulliver, who became chief executive in January.

He plans to axe 30,000 posts by 2013 and create another 15,000 jobs in emerging markets over roughly the same period as part of plans to save $2.5-3.5 billion in costs by 2013.

HSBC also recently agreed to sell its US credit card and retail services business to Capital One Financial Corp. in a deal worth $32.7 billion.

Founded in Hong Kong and Shanghai in 1865, HSBC sees Asia as its most important region although it remains headquartered in London. More than a third of its current workforce of about 300,000 are based in Asia.

© 2011 AFP

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