Global banking colossus HSBC saw strong profits growth in 2011 despite its investment banking arm's profits taking a dive.
Reported profit before tax at $21,872m was ahead of expectations and up from $19,037m the year before. It was, however, boosted by favourable fair value movements of HSBC's own debt to the tune of $3.9bn.
Retail Banking and Wealth Management contributed $4,270m to profits in 2011, up from 3,839m the year before. The Commercial Banking arm's profits rose to a record $7,947m from $6,090m.
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Global Banking and Markets (GB&M), the investment banking division of HSBC, saw profits slump to $7,049m from $9,215m in 2010. The division had to hand over the accolade as biggest contributor to profits to the Commercial Banking division, which accounted for 36.3% of profits (up from 32.0% in 2010), versus GB&M's 32.2% (2010: 48.4%).
Global Private Banking's profits also eased, to $944m from $1,054m in 2010.
Other parts of HSBC chipped in with profits of $1,662m.
On a geographical basis, North America saw profits dip to $100m from $454m the year before, but all other regions made progress. Europe's profit climbed to $4,671m from $4,302m in 2010, while Hong Kong contributed $5,823m, up from $5,692m. It was the rest of the Asia-Pacific region, however, which delivered the eye-catching growth, with profits surging to $7,471m from $5,902m in 2010.
HSBC said it put in a strong performance in faster-growing markets, with revenue up 12% in Asia, Latin America and Middle East and North Africa (MENA), which now account for 49% of group revenue.
That growth came at a cost, though. Overall, the group's costs rose by 10% year-on-year, reflecting higher staff costs, largely in faster-growing markets, and included a number of significant items including restructuring costs of $1.1bn.
Earnings per share were up 26% on 2010 at 92 cents, ahead of broker Charles Stanley's forecast of 87 cents.
The full year dividend pay-out has been increased by 14% to 41 cents, having been topped up with a 14 cents fourth quarter dividend. This beat Nomura Securities's pessimistic projection of a 38 cents pay-out and even beat Charles Stanley's more optimistic forecast of 40 cents.
Core tier 1 capital ratio, one of the measures of a bank's financial strength, fell to 10.1%, down from 10.5% in 2010, largely reflecting the absorption of Basel 2.5 regulations and credit growth. "Our core capital strength is supported by our consistent retention of profit and investment in profit generating capacity, further building reserves," the group said.
The current year will see the group focusing on delivering its targets of a return on average shareholders's equity of between 12% and 15% and a cost efficiency ration of between 48% and 52% in 2013.
"2011 was a year of major progress for HSBC," asserted Stuart Gulliver, Group Chief Executive.
"We gained traction in our strategy designed to simplify the structure and improve the management and control of the group, thereby improving returns and positioning HSBC for growth," Gulliver added.
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