HSBC Holdings PLC, Europe’s biggest bank, reported declining profits for the first half of 2014 earlier today. The company highlighted the growing regulatory pressure has made its staff more “risk averse”, eroding earnings in a “risk-managing business”.
Revenue for the first half was down 9% on an annual basis to $31.17 billion, while pretax profits dropped 12% to $12.34bn. Last years H1 results were skewed by sizable one-time gains, like assets sales, which significantly improved sheets. Underlying revenue and profits for H1 2014, which exclude said one-time items, were down just 4% and 3.5%, respectively.
“Expect improvement in revenue in 2015,” Stuart Gulliver, CEO of HSBC Holdings said. “There are indications that interest rates could start to rise as early as the fourth quarter of 2014 in the UK and the first half of 2015 in the US, which given the size of our commercial surplus has positive implications for our revenues.”
The company also set aside $234m for its “customer redress programs”, which include contingent litigation issues related to the bank mis-selling Payment Protection Insurance and interest rate swaps, and disputes over advice given by the companys wealth management division.
In the backdrop of increasing regulatory pressure on HSBC, and on banks in general, the firms executives warned of the growing issue of risk aversion by its employees.
“There is a creeping concern that staff are very clearly focused on the penalties for getting things wrong and building risk aversion into the way they think,” Chairman Douglas Flint said. “Were in a business that takes risk and manages risk and we have to avoid getting to a state where people believe there is a zero risk tolerance.”
HSBC came under serious scrutiny two years ago, agreeing to pay almost $2bn in fines to the US over alleged money-laundering in its Mexican operations.
The British giant is not the only foreign bank with issues in the US, however. Deutsche, Barclays, Lloyds, Société Générale and BNP Paribas have all suffered, as US authorities attempt to tackle the issues, which led to the financial crisis.
HSBC Holdings Plc added 1.67% to trade at 639.80 pence per share by 12:00 GMT, marking a one year change of -15.22%.
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