Massive drop in HSBC profits

HSBC, the UK's biggest bank, has seen a massive drop in underlying pre-tax profits in the three months to the end of September.

In 2010 the figure for the third quarter was $4.6bn, this year it is down to $3bn. HSBC blames decreased revenues in its investment banking division, an adverse movement in its hedging strategy of $0.7bn and an increase in loan impairment charges, primarily in North America.

The "reported" profit before tax figure, which gives a less accurate sense of how the business is performing was actually up $3.6bn on the equivalent period of 2010, at $7.2bn, including a $4.1 favourable move in the value of the bank's own debt. This will not be the figure investors will be looking at, however.

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The underlying profit figure of $3bn is significantly lower than analysts had been predicting, with Nomura, considered to be quite pessimistic, suggesting $4.3bn. In other words, these numbers don't look great for HSBC, although in response to today's figures the group's Chief Executive, Stuart Gulliver, has emphasised that the travails of HSBC are not specific to the company but industry wide.

"The sector faces significant headwinds. The continuing macroeconomic, regulatory and political uncertainty, particularly in Europe, adversely affected our industry's performance in the quarter," he said.

The problem Gulliver has is that the headline numbers are not supported by other problematic metrics, including the cost efficiency ratio which has worsened, albeit slightly, from 54% to 54.6%. This despite operating expenses being down and the number of full time employees dropping by 5000 since the start of the year.

The market is obviously concerned by the figures today, at 0830 London time HSBC's share price was down 2.75%.

BS