HSBC Holdings PLC's net income rose to $16.8 billion last year from $13.2 billion in the previous 12 months. Costs as a proportion of revenue climbed to 57.5 percent from 55.2 percent on wage inflation and the UK's levy on bank balance sheets, the lender said on Monday.?[Photo/Bloomberg]

Lender's plan to cut up to $3.5b in costs includes losing 30,000 jobs

LONDON - HSBC Holdings PLC, Europe's largest bank by market value, said it is on a "clear trajectory" to meeting its profitability target next year as it posted a 27 percent increase in full-year profit for 2011.

Net income rose to $16.8 billion last year from $13.2 billion in the previous 12 months, meeting the $16.5 billion median estimate of 24 analysts surveyed by Bloomberg. The lender expects to meet its target of a 12 percent to 15 percent return on equity by 2013, London-based HSBC said in a statement on Monday.

Chief Executive Officer Stuart Gulliver is cutting 30,000 jobs and withdrawing from less profitable markets to save as much as $3.5 billion of costs by 2013 and revive profit after more than $65 billion of losses on souring loans in North America. Barclays PLC, a British competitor, said last week it may fail to hit its 13 percent profitability target by 2013.

"The strength of our position gives us confidence that by the end of 2012 we will have developed a clear trajectory towards meeting our target of 12 percent to 15 percent by the end of 2013," Gulliver said in the statement.

Return on equity rose to 10.9 percent from 9.5 percent last year, still short of the lender's target range. Costs as a proportion of revenue climbed to 57.5 percent from 55.2 percent on wage inflation and the UK's levy on bank balance sheets, the lender said on Monday. That's more than the 48 percent to 52 percent target range set by HSBC.

Cost control

"Cost control remains an issue," said Gary Greenwood, an analyst at Shore Capital Ltd in Liverpool. "There were slightly higher costs and weaker revenue than I was expecting."

The shares fell 0.8 percent to at 570.5 pence (90 US cents) as of 9:10 am in London trading. As of Monday, the stock had declined 19 percent over the past 12 months. The Bloomberg Europe Banks and Financial Services index has declined 28 percent in the period.

Gulliver said on Monday the lender had made $900 million of savings and expects to meet the "upper end" of its cost-reduction target by 2013. The lender, which gains most of its profit from Asia, has announced $4.89 billion of asset sales since May, including the disposal of divisions in Japan, South Korea and Thailand, according to data compiled by Bloomberg.

"A substantial amount has been achieved during 2011, but this will be a long journey with significant headwinds, so we are increasing the intensity of execution in 2012," he said.

Net income was boosted by a $4.16 billion gain on the value of its own debt, under an accounting rule that requires banks to book gains when the value of their debt declines because a profit would be realized were the bank to repurchase that debt. Impairments and other provisions declined to $12.1 billion from $14 billion, the company said.

Division results

Pretax profit from HSBC's commercial banking arm rose 31 percent to a record $7.9 billion, the lender said. Income from retail banking and wealth management advanced 11 percent to $4.3 billion.

Profit at HSBC's investment banking division, led by Samir Assaf, fell 24 percent to $7 billion. That compares with a 32 percent drop to 2.97 billion pounds at Barclays' securities unit in the same period.

Pretax profit in North America declined 78 percent to $100 million. Profit in Hong Kong, its biggest single Asian market, rose 2.3 percent to $5.82 billion and increased by 8.6 percent in Europe to $4.67 billion.

"We expect continued strong growth in the dynamic markets of Asia, Latin America and the Middle East, although at a more moderate pace than in 2011," Gulliver said on Monday. "Trade and capital flows between emerging areas of the world will also continue to grow, and could increase tenfold in the next 40 years."

Bloomberg News