HSBC cuts 2011 financial targets

People sit next to an HSBC lion statue at the bank's headquarters in Hong Kong yesterday. HSBC said that its net profit more than doubled to $13.2 billion last year as bad debts plunged to their lowest level since 2006. Photo: AFP
HSBC cut its profitability targets due to the cost of tougher banking regulations, joining rivals such as Barclays, and disappointed investors with below forecast 2010 earnings.
The bank's pre-tax profit for the year ending December 31 more than doubled from 2009 to $19 billion, but this figure came in below the average pre-tax profit forecast of $20 billion, according to Reuters.
HSBC said yesterday that it had made a good start to the year, but new chief executive Stuart Gulliver cut the bank's long-term return on equity (ROE) target to 12-15 percent from a previous 15-19 percent target.
HSBC's shares were at their lowest level in nearly a month, and were among the worst performers on Britain's benchmark FTSE 100 index.
"The underlying pre-tax profit is significantly disappointing," said Canaccord Genuity analyst Cormac Leech.
Banks around the world are under pressure from regulators to raise capital to strengthen their balance sheets, to stave off a return of the 2008 credit crisis.
Gulliver said he did not think that HSBC would need a rights issue to raise new capital.
However, Finance Director Iain Mackay said the bank's new, scaled back return on equity target reflected the tougher capital requirements for banks, as well as global economic uncertainty, as highlighted by recent political tensions in the Middle East and north Africa.
"We've targeted 12 to 15 percent through the cycle for return on equity, principally taking into consideration what we view as a somewhat unstable and uneven economic recovery over the coming years as well as much higher capital requirements," said Mackay.
HSBC's decision to cut back its return on equity targets followed a similar move by rivals Barclays and Credit Suisse.
Both those lenders scaled back their profitability expectations, saying their returns would be held in check by those regulatory requirements.