HSBC tips Asia and emerging markets in a 'two-speed economy'

Published on Monday 1 March 2010 20:02

ASIA and other emerging markets will grow at three times the speed of the West in 2010, HSBC forecast yesterday, as it also posted mega-bonuses for its investment bankers.

The bank, domiciled in the UK but with roots in Hong Kong, made its prediction as a surge in bad debts and accounting losses saw headline profits slide 24 per cent to $7.1 billion (4.7bn) in 2009 from $9.3bn (6.2bn) the year before.

Mike Geoghegan, chief executive, pictured below, said the likelihood of a "two-speed economy" this year and beyond was part of the reason why he relocated to Hong Kong earlier this year. He said the Asian growth story continued. "Factory production in China is up, the shopping malls are full and freight traffic is up," he said, adding that the group also had high hopes for growth in other emerging markets, such as Latin America.

Geoghegan said he disagreed with those who felt emerging market economic growth was a bubble set to burst. He said: "We expect emerging market economies to motor ahead, growing three times faster than mature economies. Developed economies are stuck in first gear and are still in danger of stalling."

He said China and the rest of Asia were looking at economic growth of about 8 per cent and that HSBC needed to be "nimble" to capitalise on it.

"There's no doubt everybody else is looking at Asia," he said.

During the year, HSBC increased staff in China, India, Indonesia and Hong Kong, Geoghegan said, while 3000 jobs went in the UK. HSBC said it remained in talks to be one of the first overseas companies to list in Shanghai.

Profits in Hong Kong fell to $5bn ($5.5bn) last year and edged back in the rest of Asia Pacific to $4.2bn from $4.7bn.

HSBC's group profits were dented by a $6.3bn technical accounting loss on the value of its own debt. Underlying profit was up 56 per cent at $13.3bn (8.9bn).

The group reported another increase in borrower bad debts and impairments in 2009 – up 9 per cent to $26.5bn (17.5m).

The star performer was the investment bank, where profits surged to $10.5bn from $3.5bn as capital markets recovered, sparking massive bonuses for its leading staff. The top five earners at the bank made 35m in bonuses, four of whom worked for the investment bank.

HSBC revealed that the head of the investment banking arm, Stuart Gulliver, made over 10m in total, with two of his staff earning over 9m each and one about 5.6m. Geoghegan, the fifth-top earner at the bank, confirmed he would give his bonus of up to 4m to charities.

Losses at the group's retail banking arm fell to $2.1bn from $10.9bn as demand fell and margins were strained.

UK profits at HSBC fell to 988m from 1.98bn, but the bank's share of new mortgage lending jumped to 11 per cent, well above its normal share of 4 per cent. HSBC said it loaned 26bn to UK businesses in 2009, with more than 125,000 new business accounts opened. Its market share of UK business lending is now 17 per cent. The bank said it saw a 14 per cent rise in business banking customers in Scotland, as it also invested 1.3m in the new Glasgow Commercial Centre.

HSBC's shares closed down 5 per cent, or 37.6p, at 682p at disappointment the results were below expectations. Richard Hunter, the head of UK equities at Hargreaves Lansdown Stockbrokers, said: "The initial share price performance has mirrored some mild disappointment with the numbers, which had been subject to high expectations."

However, Hunter added: "The bank remains a behemoth which has weathered the crisis better than most. The shares have risen 57 per cent over the last year, versus a wider FTSE100 gain of 40 per cent."