HSBC profits held back by higher expenses and mis-selling costs

Reported operating expenses of $17.5bn were 7% higher, reflecting increased investments into growth and technology, and H1 costs also included a $765 million settlement for alleged mis-selling of U.S. mortgage securities.

Revenues edged higher, with the group’s four main divisions all making steady progress, offset by a drop in income earned by the Corporate Centre.

However the market reacted cautiously to the numbers, with shares down 1% in early trade, as reported costs rose significantly faster than income.

John Flint, HSBC's group chief executive, said: “We are taking firm steps to deliver the strategy we outlined in June. Today’s results, which are in line with our expectations, show strong revenue growth in our global businesses. This is creating room to invest while maintaining our commitment to full-year positive adjusted jaws. We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns.”

Steve Clayton, manager of the HL Select UK Income Shares fund, commented: “HSBC is struggling to convince that its current restructuring to pivot the group toward Asia is delivering the hoped for pick-up in growth. Financially HSBC is in a strong place, with a common equity tier 1 ratio of 14% and an advances to deposits ratio of just 72%. The group has announced another quarterly dividend of 10 cents per share, exactly as expected. Return on Equity though is still less than 9%, showing the difficulties major banks face these days in trying to earn a high rate of return in an increasingly regulated financial world.

"The underlying revenue growth picture is perhaps better than the headlines suggest, with areas like Private Banking drawing in substantial new inflows. Bad debts are tightly controlled, with charges down significantly in H1. The group themselves say that their costs and revenues are on track for the full year, suggesting that H2 ought to see a better balance in favour of income growth. HSBC now need to start delivering against the growth agenda they set out to the markets a couple of years ago. But in a world of tit-for-tat sanctions between the global powers, it could become harder for HSBC to benefit from its deep Asian roots.”