Costs hit HSBC 1Q profits as CEO readies shake-up

Reuters: Profits at HSBC Holdings fell 14 per cent from a year ago as a jump in costs offset a fall in bad debts at Europe’s biggest bank, due to outline a drastic shake-up of its business this week.

HSBC said it would take a $ 440 million provision to compensate UK customers who were wrongly sold insurance as banks scrapped a legal fight on the issue, which has implicated most of the UK’s big banks.

That provision – and markedly higher staff costs in investment banking – helped lift the ratio of costs to revenue to 60.9 per cent from 55 per cent in the previous quarter.

“We have increased our emphasis on cost management... launching a number of cost reduction programmes... which will be covered in more detail at the Strategy Day (this Wednesday),” Chief Executive Stuart Gulliver said in a statement.

HSBC said it made a pretax profit of $ 4.9 billion in the first quarter, down from $ 5.7 billion a year ago, though higher than the $ 4.4 billion in the fourth quarter.

The bank also said its performance in April was “satisfactory and in line with expectations”.

The update came two days before Gulliver unveils a radical shake-up, expected to outline dramatic cost-cutting, a pull back from some of the 87 countries it has a presence in, and possibly the sale of its US credit-card business.  Gulliver was named CEO in September after a damaging boardroom power struggle, promising to “re-engineer the business” and to be more rigorous and disciplined on where to allocate capital when he took the helm at the start of the year. Costs are expected to be cut by at least $ 2 billion annually after jumping to an “unacceptable” level last year, potentially seeing jobs go and investment reined in.

Gulliver aims to cut costs to a range of 48 to 52 per cent of revenues, and it will take two to three years to reduce costs to that level, he told journalists on a conference call.