HSBC 2010 profit up, but disappoints investors

LONDON – HSBC Holdings PLC increased its dividend Monday as it reported that profits more than doubled last year, but the bank disappointed investors by falling short of analysts' forecasts and cutting its future profitability predictions.

Shares in the bank dropped 5 percent by early afternoon as investors focused on the negatives rather than a rise in profits to $13.2 billion, from $5.8 billion the year before.

Pretax profit was up 169 percent to $19 billion. HSBC's investment banking arm was responsible for approximately half the profits as loan impairment charges dropped to the lowest level since 2006.

Revenue was up 2 percent to $80 billion, constrained by reduced loan balances in the United States, lower trading income in Global Banking and Markets and adverse fair value movements on hedges.

The bank announced a final dividend for 2010 of 12 cents, up from 10 cents, and said there would be a higher payout of 9 cents a quarter for the first three quarters of 2011. It also promised a benchmark payout ratio of 40-60 per cent of attributable profits in future.

But new Chief Executive Stuart Gulliver also warned that future profitability would be constrained by new capital rules, leading the bank to lower its return on target equity range to 12-15 percent from 15-19 percent.

"Apart from the profit numbers being slightly shy of analyst estimates, a further triple whammy has dented sentiment in the form of a lower proposed return on equity, a deterioration of the cost/income ratio and further pressure on margins, particularly in its important Asian region," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers.

HSBC stock was down 5 percent at 675 pence in early afternoon trade on the London Stock Exchange.

Ian Gordon, an analyst at Exane BNP Paribas, said that the earnings miss was broad-based, with results below expectations in every customer group — personal financial services, commercial banking, global banking and markets and global private banking.

Hunter said one positive, in line with reports from Barclays PLC and state bailout recipients Royal Bank of Scotland PLC and Lloyds Banking Group PLC last week, was the fall in loan impairment charges.

Loan impairment charges at HSBC dropped $12.4 billion to $14 billion, with the greatest improvement in HSBC's credit card and consumer finance businesses in the United States.

The results of the "Big Four" British banks have been mixed.

Barclays PLC, which shunned state assistance at the height of the financial crisis, reported a strong rise in 2010 net profit to 3.56 billion pounds from 2.63 billion in 2009.

RBS, Britain's largest government-owned bank, missed analysts' expectations with a 1.1 billion pound full-year loss despite returning to profit in the final quarter of the year.

Lloyds also disappointed with a net loss of 258 million pounds ($415 million) for the full year on the bank of exposure to Ireland's financial crisis, compared with a 2.9 billion pound profit in 2009.

HSBC awarded Gulliver, who took over as CEO on Jan. 1, a 5.2 million pound bonus in deferred shares for his 2010 performance, down from the 9 million pounds he was granted in 2009.

Chairman Douglas Flint said the lower rate reflected the shift in his role last year, when he went from being solely head of Global Banking and Markets, HSBC's investment-banking arm, to also running its private bank and serving as European chairman.