Year 1 in a three-year strategy that should eventually see HSBC become the world’s leading international bank seems to have gotten off to a galloping start.
HSBC plc, the world’s second largest banking group, reported upbeat figures for 2011, gaining the traction required to achieve strong growth in 2012 but at a more moderate pace.
HSBC reported a profit before tax of US$21.9 billion, up 15% on 2010. It achieved what it described as a “. . . strong performance in faster-growing markets, revenue up 12% in Asia, Latin America and MENA, which now account for 49% of Group revenue.”
Its Hong Kong operations accounted for 27% of profits (US$5.8 billion), second highest among HSBC regions.
Group Chairman Douglas Flint said that in its heartland of Asia, the Group made “. . . good progress in developing customer business in line with the risk appetite endorsed by the Board.”
He noted that the Board considered the Group’s performance in 2011 to be satisfactory in aggregate and strong in the faster growing markets.
Earnings per share came to US$0.92, up 26% on 2010. Return on average ordinary shareholders’ equity stood at 10.9%, up from 9.5% in 2010, including fair value on debt.
It was a record year for the bank’s commercial banking operations with a profit before tax of US$7.9 billion, up 31% year-on-year. On the other hand, the profit before tax of global banking and markets fell 24% to US$7.0 billion.
Costs rose 10%, reflecting higher staff costs largely in faster-growing markets.
Stuart Gulliver, Group Chief Executive, described 2011 as a year of major progress for HSBC.
“We gained traction in our strategy designed to simplify the structure and improve the management and control of the Group, thereby improving returns and positioning HSBC for growth.
“We recorded a strong performance in faster-growing markets and had a record year in commercial banking. I am pleased with our progress but there is a lot more to do and we remain focused on delivering our targets.”
Gulliver said the Group has made significant progress in executing this strategy to reshape the Group and improve returns.
Among these steps taken was the conduct of a Group-wide portfolio review to improve capital deployment. This resulted in the disposal or closure of 16 non-strategic businesses during the year, and a further three in 2012.
The Group also took action to improve its cost efficiency and most importantly, “we continued to position the business for growth, increasing revenues in each of the world’s faster-growing regions, particularly in mainland China, India, Malaysia, Brazil and Argentina,” said Gulliver.
“Executing our strategy is the primary lever to improve the Group’s performance. A substantial amount has been achieved during 2011 but this will be a long journey with significant headwinds, so we are increasing the intensity of execution in 2012.”
He said there are two major trends that are key to HSBC’s future: the continuing growth of international trade and capital flows; and wealth creation, particularly in faster-growing markets.
In a difficult operating environment, Gulliver said this strategy is key to improving the Group’s performance.
“We remain focused on delivering our targets of a return on average shareholders’ equity of 12-15% and a cost efficiency ratio of 48-52% by the end of 2013.
“We are executing the strategy by deploying capital more effectively, implementing measures to improve our cost efficiency and positioning the business for growth. We have made significant progress in all of these three areas.”
He also said they are creating a leaner Group, removing layers of management to give staff greater responsibility, improve decision making and reduce bureaucracy.
The outlook for 2012 remains positive, Gulliver said.
“In 2012, notwithstanding the macroeconomic, regulatory and political uncertainties which we believe will persist, we expect continued strong growth in the dynamic markets of Asia, Latin America and the Middle East, although at a more moderate pace than in 2011, and that mainland China will achieve a soft landing.
“We believe that trade and capital flows between emerging areas of the world will also continue to grow, and could increase tenfold in the next 40 years.”
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