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Comment: UK taxman pockets $5.3bn from HSBC

Comment: UK taxman pockets $5.3bn from HSBC

Mon, 28 February 2011
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The investment banking arm of HSBC is still the main money spinner for a company that is clearly more than just a High Street bank.

The global banking giant declared pre-tax profit of $19.4bn, a sharp improvement on 2009’s $7.1bn but almost a billion dollars below what the market had been expecting.

Global Banking and Markets, the investment banking and financing solutions, accounted for just over half of those profits, raking in $9.54bn, though that was a 9% fall on 2009’s figure of $10.48bn.

The Commercial Banking division saw a strong improvement in profitability, however, while the group’s Personal Financial Services division moved back into the black.

Commercial banking profits grew 42.5% to $6.09bn from $4.28bn the year before while the profit from Personal Financial Services was $3.52bn, compared to a loss of $2.07bn in 2009.

Profits from the Global Private Banking dipped to $1.05bn from $1.11bn the year before.

The group’s North American operations returned to profit in 2010 as the bad debt situation improved massively. Having tanked to the tune of $7.74bn in 2009 the 2010 profit of $454m. while just 2.4% of total group profits, was a welcome development for the bank.

The group’s traditional Asia focus became even more pronounced, with Hong Kong alone accounting for 29.9% of profits at $5.69bn (2009: $5.03bn), while the rest of the Asia-Pacific region weighed in with a contribution of $5.90bn, up from $4.20bn in 2009, representing 31.0% of total group profits.

The taxman will be more pleased this year than last. In 2009, despite making a pre-tax profit of $7.1bn, the bank paid just £385m in tax worldwide; that went up to $4.85bn this year.

The UK tax take is even higher, at $5.33bn, up from $1.98bn in 2010.

The government’s hope that the bank will do its bit to boost the economy and lend more received a knock, however, with HSBC chairman Douglas Flint complaining that this would be difficult to achieve while the banking industry is under pressure to maintain higher liquidity levels.

“It will be a near impossibility for the industry to expand business lending at the same time as increasing the amount of deposits deployed in government bonds while, for many banks but not HSBC, reducing dependency on central bank liquidity support arrangements,” Flint observed.

“It is to be hoped that the observation period, which starts this year and precedes the formal introduction of the new requirements, will inform a recalibration of these minimum liquidity standards,” he added.

Total loans and advances to customers increased by 7% to $958bn in 2010 while deposits increased by 6% to $1.2 trillion.

There were sympathetic words, but not much more, to the UK government’s hopes for pay restraint at the group, with Flint maintaining that, in terms of public and government anger at huge bonuses for bankers, HSBC “gets it”, but he added that “it would be irresponsible to allow our comparative advantages to wither by ignoring the market forces that exist around compensation.”

“We will continue to operate and apply remuneration policies and practices that take full recognition of best practice and are aligned with the long-term interests of shareholders,” Flint said.

Employment compensation and benefits rose 7.4% to $19.84bn in 2010, equivalent to around $64,612 per employee, from $18.47bn in 2009.

The highest paid banker pocketed a cool £8.4m plus change last year, and 280 of HSBC's high fliers shared in bonuses of $374m, an average of $1.34m each. Of these, 186 were based in the UK and their aggregate share of the bonus pot was $172m, giving an average pay out of £0.92m.

Total compensation in the Global Banking and Markets division was unchanged at 23.3% of risk adjusted revenue on a reported basis, the company said.

There was also a veiled threat about the increased costs of being headquartered in London.

“New legislation is expected to be enacted in the UK, effective from the start of 2011, one curious consequence of which is an explicit incremental cost of being headquartered in the UK for any global bank. Had this been applied for 2010, this annual charge would have amounted to approximately $0.6bn in HSBC's case,” noted chief executive Stuart Gulliver.

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