Profits Fall at HSBC as Bank Invests in Compliance, Securities Services Holds Steady

HSBC’s securities services revenue was essentially flat for the first half of 2014 compared to the same period last year, as revenue totaled $846 million compared to $847 million in the first half of 2013. Compared to the second half of 2013, revenue rose 3.8% this half.
By Jake Safane(2147484770)
HSBC’s securities services revenue was essentially flat for the first half of 2014 compared to the same period last year, as revenue totaled $846 million compared to $847 million in the first half of 2013. Compared to the second half of 2013, though, revenue rose 3.8% this half.

Within securities services, global custody net fee income totaled $359 million, a 1.4% drop since last year but a 7.5% increase over the previous six months. As of the end of June 2014, HSBC has $6.6 trillion in AUC, 6% higher than six months ago. The bank says this increase was mainly due to new business in the U.K., Australia and Hong Kong, along with favorable foreign exchange movements.

HSBC’s assets under administration also rose 3% since six months ago to a total of $3.2 trillion. Similarly, this increase was due to new business in the U.K. and Hong Kong as well as the effect of foreign exchange movements.

As a whole, though, HSBC’s pre-tax profit fell 12% year over to $12.3 billion. Part of the drop is due to the fact that the first half of 2013 benefited from higher gains from disposals and reclassifications, but HSBC did see large losses in areas such as Global Banking & Markets. This segment, which includes securities services as well as services such as financing and trading, fell 12%. HSBC says that low market volatility and client activity negatively affected this segment.

“At a time of residual concerns over the sustainability of economic growth in many major markets and with heightened geopolitical tensions apparent, the Board supported management’s view that this was not the time to expand risk appetite to offset the effect of lower revenues arising from business disposals and legacy portfolio run-off,” says Douglas Flint, group chairman of HSBC.

“These results illustrate the challenge of funding a considerable expansion of Risk and Compliance resources as well as the operational and structural changes needed to address new regulatory and public policy requirements at a time of limited revenue growth opportunities,” he adds.

The bank did increase its common equity tier 1 ratio to 11.3%, compared with 10.9% at the beginning of the year and 10.1% a year ago.

The bank’s operating expenses were roughly in line with the same period last year, although significant costs from last year such as Madoff-related investigations did not recur. For this year’s first half, however, the bank had notable new costs such as $326 million in increased investment in risk (including compliance) and global standards. However, HSBC was able to generate $500 million in sustainable cost savings by re-engineering back-office processes, which, along with business disposals, contributed to a 2% drop in average headcount.

With more of a focus on risk and compliance, HSBC is adding Heidi Miller as a board member and an independent non-executive director, effective September 1. Miller previously served as president of International at J.P. Morgan from 2010 to 2012, where she was responsible for leading the bank’s global expansion and international business strategy across the Investment Bank, Asset Management, and Treasury & Securities Services divisions. Prior to this, she ran the bank’s Treasury & Securities Services for six years. Before J.P. Morgan, Miller held executive roles at Bank One, Priceline.com and Citi.

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