The bank missed its targets for cost efficiency and return on equity in 2013, despite axing 40,000 jobs and selling or closing 60 businesses over the past three years. HSBC’s cost-efficiency ratio of 59.6 per cent and its return on equity ratio of 9.2 per cent were both below the target ranges of mid-50s and 12-15 per cent respectively that the bank has set itself for the next three years.
Group chief executive Stuart Gulliver said both measures were hit by the cost of compensating UK consumers for the mis-sale of loan insurance. He added: “Although much progress has been made since 2011, we did not meet all of our targets by the end of 2013.” Despite this, Gulliver’s pay, including salary and bonuses, rose last year to £8 million from £7.5m in the previous year.
The overall bonus pool rose 6 per cent to $3.9 billion (£2.4bn), potentially sparking further political fallout amid calls for banking restraint on remuneration following the financial crisis. HSBC revealed it planned to pay hundreds of top staff a new quarterly allowance that effectively increases their fixed pay to meet a new European Union law capping bonuses at 200 per cent of salary.
The group reported a 2013 pre-tax profit of $22.6bn (£13.6bn), up from $20.6bn in 2012 but below the average forecast of $24.3bn. Shutting businesses hit the bank’s revenues, which fell 5 per cent. Stripping out the impact of disposals, underlying revenue was $63.3bn, up from $61.6bn.
Analysts said HSBC had to show it could replace income lost from the sale of US businesses and a stake in a Chinese insurer, and combat concerns about jitters in emerging markets.
Mediobanca analyst Chris Wheeler said: “Having made good headway in pulling out of low-quality businesses, they are now facing the headwinds of emerging markets. It’s not a disaster, but they are paddling hard to make any progress.”
The bank is performing strongly in Hong Kong, where profits hit $8bn in 2013, but it earns half its profits from the rest of Asia-Pacific, the Middle East and Latin America.
Gulliver warned of “greater volatility in 2014 and choppy (emerging) markets”, which have been buffeted by the US Federal Reserve decision to scale back its economic stimulus measures via bond-buying.
HSBC’s investment bank reported a flat fourth quarter, with pre-tax profit of $1.87bn. Shares closed down 2.8 per cent at 635.7p.