HSBC's (HSBA) shares slipped about 4 per cent in morning trading after the bank announced that reported earnings for 2013 had missed consensus forecasts by about 9 per cent.
Management put the miss down to such hard-to-control costs as extra PPI redress provisions. HSBC set aside a further $756m (£454m) for that, but finance director Iain Mackay reckons the pain here is on a "declining trend". The UK bank levy also grew by $321m in 2013 to $904m. Despite this harsh treatment and the fact that HSBC generates 70 per cent of its profits in Asia, chief executive Stuart Gulliver insists the group is not thinking of shifting its headquarters to Hong Kong. He also quashed rumours that HSBC may spin out its UK arm as a separate bank.
For all the bad news, however, HSBC did deliver $1.5bn-worth of cost savings, bringing total savings since 2011 to $4.9bn. Management is targeting a further $2bn-$3bn between 2014 and 2016. Meanwhile, improving credit quality pushed the bad debt charge down by 30 per cent to $5.8bn. There was especially impressive progress within the US consumer credit arm - now in run down - where the charge for bad debts fell 65 per cent. In fact, strip out exceptional items such as movements in the fair value of HSBC's own bonds and group underlying pre-tax profit soared 41 per cent to $21.6bn.
Earnings growth and costs savings, along with the disposal or closure of 63 non-core businesses since 2011, have also helped boost capital. HSBC's Basel III tier one capital ratio reached 10.9 per cent, leaving it among the world's best capitalised banks. Impressive cash flow is also supporting a chunky dividend, making HSBC one the highest dividend payers in the FTSE, notes Mr Gulliver.
Pending downgrades, broker Investec Securities was expecting EPS of 91.9¢, a 60¢ dividend and net tangible assets (NTA) of 815¢ this year.
