HSBC has seen a 29 per cent fall in its profits in the first half of 2016, and has warned of a potentially “significant” impact from the Panama Papers investigations.
The bank saw reported profits fall to $9.7bn, with that figure including a £1.2bn notional loss on its outstanding debt.
The bank’s adjusted profit figure, which allows for this accounting measure, shows a 14 per cent drop in profits, to $10.79bn from $12.55bn.
The bank also announced a $2.5bn share buyback, after the sale of its Brazilian business.
Stuart Gulliver, group chief executive, says: “Following the successful sale of our Brazil business and having received the appropriate regulatory clearances, I am pleased to announce that we will execute a share buy-back of up to $2.5bn, which should benefit all shareholders and demonstrates the strength and flexibility of our balance sheet.”
The bank says it has received PRA approval for the buyback and plans to complete it before the end of the year.
“While economic conditions remain difficult, we are making progress in all of the areas within our control. In the meantime, our balanced business model, strong liquidity and strict cost management make us highly resilient,” says Gulliver.
However, the bank did warn that the effect on the bank of the ongoing investigations into the Panama Papers were unknown.
“HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co, a service provider of personal investment companies. HSBC is cooperating with the relevant authorities,” the results state.
“Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, says the bank’s results are contributing to an unhappy reporting season for the banks.
“HSBC is the latest to report a drop in profits, despite the bank’s best efforts to cut its cloth by stripping out costs. The problem for HSBC is its revenues fell faster than it could cut costs, resulting in negative jaws in banking parlance, which combined with an increase in bad loans led to falling profits.
“Litigation remains a key risk for the banking sector, and HSBC’s report on the legal proceedings facing the bank reads like a barely trimmed down version of War and Peace. This includes a section on the Panama Papers which states HSBC does not know at present what, if anything, the impact on the bank will be, but warns it could be significant.”