HSBC Holdings, Europe’s largest bank, reported a bigger-than-expected jump in third-quarter profit as costs related to fines and legal settlements declined.
Pretax profit jumped to $6.1 billion from $4.6 billion a year earlier as operating costs fell, the London-based lender said in a statement on Monday. That exceeded the $5.2 billion average estimate of 14 analysts compiled by the bank. HSBC reiterated that a decision on its domicile may not come until next year.
Chief Executive Officer Stuart Gulliver, 56, unveiled a three-year plan in June to pare back a sprawling global network, shut money-losing businesses and eliminate as many as 25,000 jobs after compliance costs surged. The third-quarter result benefited from a $1.4 billion decline from a year earlier in fines, settlements and redress for UK customers.
“Our cost-reduction measures are beginning to have an impact,” Gulliver said. “There is more to achieve on costs and we expect the measures we have already taken to have a further impact in the fourth quarter.”
Operating costs decreased 19% from a year earlier to $9 billion. That was below analysts’ average forecast of $9.4 billion. While net operating income fell 4% to $15.1 billion, that exceeded an average estimate of $14.8 billion.
The bank, which has been making more than two-thirds of its earnings in Asia, is assessing whether to move its headquarters away from London. Pretax profit in Asia rose 2% to $3.5 billion in the quarter from a year earlier.
In Monday’s statement, the lender said that “a considerable amount of work” remains for deciding on its domicile and a decision may not come this year. The bank may provide an update on the deliberations “if necessary” when it publishes its full- year results in February, it said.
Gulliver said Oct. 16 that the decision “can’t slip too far” because it’s disruptive for staff.
Since taking over in 2011, Gulliver’s announced more than 87,000 job cuts, exited about 78 businesses and is close to finalizing the sales of its operations in Turkey and Brazil. In the UK, as many as 8,000 jobs will be cut, the CEO said in June.
British banks’ earnings have been battered by rising costs for misconduct. Barclays Plc last week forecast that conduct and litigation charges would remain “elevated,” when cutting its profitability target for next year. Lloyds Banking Group Plc said that it may have to set aside an additional 1 billion pounds ($1.5 billion) in the second half to cover wrongly sold payment protection insurance.
HSBC reported a common equity Tier 1 capital ratio, a measure of financial strength, of 11.8%, up from 11.6% in the first half.
The bank’s provisions for souring loans fell 16% to $638 million in the quarter from a year earlier. Return on equity, a measure of profitability, was 10.9% for the third quarter, up from 7.2% a year earlier.
©2015 Bloomberg News