HSBC posted a deeper-than-expected 17 per cent slide in annual profits and cut its earnings target yesterday, as it admitted the Swiss tax furore had “shamed” the banking giant.
A contrite group chief executive Stuart Gulliver told reporters: “A number of us think the practices of the private bank in the past are a source of shame and reputational damage to HSBC.”
Douglas Flint, the Scots-born chairman of the bank, is due to appear before the Treasury select committee tomorrow to answer questions on the practices at the Swiss subsidiary.
Gulliver’s comments came as Europe’s biggest bank reported a pre-tax profit of $18.7 billion (£12.1bn) in 2014, down from $22.6bn the year before, after it was hit by higher costs and a series of provisions for misdeeds. These included attempted rigging of foreign exchange markets.
Shares in HSBC fell nearly 6 per cent, their biggest intra-day slide in three years, before closing down 4,6 per cent at 577.2p as the group also said it was cutting its three-to-five year return on equity (RoE) targets to “more than 10 per cent”.
That compared with a more ambitious target RoE target of 12-15 per cent first set in 2011, with the bank saying the downgrade was partly due to the need to amass more capital to meet tougher regulatory requirements.
RoE last year fell to 7.3 per cent from 9.2 per cent in the previous year. The results came amid recent reports that HSBC’s Swiss private bank had helped wealthy individuals evade paying tax, both in the UK and elsewhere.
On Sunday, Gulliver himself was dragged into the row, with the group confirming he used a Swiss bank account in a Panamanian company to hold his bonuses.
However, HSBC stressed yesterday that Gulliver, an HSBC veteran, had behaved “transparently and appropriately”, opening the account in 1998 when he was domiciled in Hong Kong, and paying full tax in the former colony on the bonus payments.
The chief executive said that he had also never paid below the full UK tax on his entire worldwide earnings.
He said the use of a Panamanian company was for reasons of “privacy”, as the computers used by the bank at that time would have allowed other employees in either Hong Kong or Switzerland to know his bonus when he was not a board member and there was no legal requirement for disclosure.
The chief executive’s overall pay last year fell to £7.6m from £8.03m, mainly reflecting a further £500,000 bonus cut linked to the foreign exchange manipulation. HSBC also disclosed that its five best-paid executives were awarded a total of £26.76m last year, an average of £5.35m each.
Gulliver said he had sharply retrenched HSBC’s sprawling worldwide business, from America, Europe and the Middle East to Asia Pacific, selling 77 businesses and cutting the headcount from 310,000 to 257,000. But he added that while further “simplification” was necessary “I don’t think the firm is too big to manage”.
During last year, HSBC’s retail banking and wealth management division saw profits fall $1bn to $5.6bn, while investment banking earnings slumped to $5.9bn from $9.4bn.
However, it was a better picture at commercial banking, lending to bigger but not the very biggest companies, where profits rose to $8.7bn from $8.4bn.
Private banking profits also advanced, up to $626m from $193m.
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