HSBC Logs Surging Net Profit, Warns of 'Headwinds' in Sector

Global bank HSBC said Wednesday its third-quarter net profit soared on a large accounting gain but underlying earnings sank as the group warned of "significant headwinds" for the sector.

Profits after taxation rallied 66 percent to $5.22 billion (3.79 billion euros) in the three months to September, reflecting a revaluation of its debt, compared with net profit of $3.15 billion in the same period 2010.

However, Europe's biggest bank added in a results statement that underlying pretax profits slumped 35 percent to about $3.0 billion as revenues dropped and the bank's bad loans rose in the United States.

"The (banking) sector faces significant headwinds," HSBC chief executive Stuart Gulliver said in the earnings release.

"The continuing macroeconomic, regulatory and political uncertainty, particularly in Europe, adversely affected our industry's performance in the quarter ... Against this backdrop, HSBC remains resilient, with a strong balance sheet and robust liquidity," he said.

Asia-focused HSBC added that its exposure to the debt of weak Eurozone states Greece, Ireland, Italy, Portugal and Spain stood at $5.5 billion at the end of the third quarter, down from $8.2 billion on June 30.

The bank's share price slumped 5.04 percent to 510.40 pence on London's FTSE 100 index, which finished down 1.92 percent at 5,460.38 points -- although equities were down across the board on Eurozone debt crisis worries.

"HSBC continues to be better placed than most European banks but its third-quarter results are a reminder that even HSBC is not insulated from various headwinds bufetting economies and markets in Europe, the U.S. and Asia," CreditSights analysts said in a note to clients.

HSBC said its core Tier One capital ratio hit 10.6 percent by the end of the third quarter -- above the 9.0 percent now demanded by regulators.

To prevent a repeat of the 2008-2009 global financial crisis when governments were forced to bail out the banks, regulators agreed in 2010 on Basel III rules requiring lenders to strengthen their capital reserves to 7.0 percent.

In addition, regulators decided in 2011 to impose additional rules on the world's biggest banks, by asking them to hold 1.0 to 2.5 percentage points more in core reserves, on top of the 7.0 percent required for all banks.

HSBC, meanwhile, is undergoing major changes under Gulliver, who became chief executive in January.

He plans to axe 30,000 posts by 2013 and create another 15,000 jobs in emerging markets over roughly the same period as part of plans to save $2.5-3.5 billion in costs by 2013.

HSBC also recently agreed to sell its US credit card and retail services business to Capital One Financial Corp. in a deal worth $32.7 billion.

Founded in Hong Kong and Shanghai in 1865, HSBC sees Asia as its most important region although it remains headquartered in London. More than a third of its current workforce of about 300,000 are based in Asia.

"Despite numbers which have beaten estimates on an accounting adjustment, the shares have fallen foul of high expectations," noted Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.