HSBC share price down, reports lower-than-expected annual profit on increased costs

HSBC Holdings Plc announced on Monday a significant fall in annual profit as Europes largest bank once again apologized for the scandal related to its Swiss private bank.

The British bank reported pre-tax profit of $18.68 billion for the past year compared to a result of $22.57 billion in 2013, as the company was hit by a wave of fines, settlement and customer compensations, which lowered its full-year results by $3.7 billion. In comparison analysts had expected pre-tax profit of $21 billion.

During the year HSBC set aside $1.19 billion for settlements and provisions related to foreign exchange investigations and $1.3 billion connected to its UK customer redress program.

Revenue for the year climbed to $62 billion from $61.85 billion, driven by strong performance of its commercial banking division, particularly in the UK and Hong Kong. The unit accounted 47% of all revenue and stated a results of $8.74 billion in twelve months to December compared to $8.44 billion in 2013.

HSBC stated operating costs of $37.85 billion, 6.1% higher than the prior year as the bank suffered from higher regulatory and compliance costs.

The bank also reduced its return on equity target to more than 10% from its previous aim of between 12% to 15%, citing higher capital requirements from UK regulators. HSBC projected its tier one capital ratio to reach 12% to 13% in the next three to five years, during which the bank will focus on growing its revenue faster than its costs.

“2014 was a challenging year in which we continued to work hard to improve business performance while managing the impact of a higher operating cost base,” said Chief Executive Stuart Gulliver.

The disappointing results come amid allegations that HSBCs Swiss private bank helped its clients avoid taxes, following the leakage of stolen client information from the bank in 2007. Last week Swiss prosecutors inspected the private banks offices in relation to the accusations, which also included money laundering. Additionally, the UK watchdog is also looking into the matter.

However, the bank has repeatedly said that its long past its unlawful practices and it has increased its requirements towards its clients, which have been reduced by around 70% since 2007.

“We deeply regret and apologize for the conduct and compliance failures highlighted which were in contravention of our own policies as well as expectations of us,” said Group Chairman Douglas Flint.

HSBC gained 0.55% on Friday and closed at GBX 605.20 in London. On Monday the stock plummeted 5.88% to GBX 569.60 at 12:43 GMT, marking a one-year decrease of 12.90%. The company is valued at £116.31 billion.

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