HSBC Does Well In Tight Hong Kong Market

by Mary Swire, Tax-News.com, Hong Kong

07 August 2001

Keith Whitson, HSBC’s chief executive, yesterday announced interim world-wide pre-tax profits of US$5.43 billion compared with US$5.21 billion, saying that the outlook for financial services remained unclear, and that the fortunes of the US economy would remain "pivotal" to global economic health.

In the first six months of 2001, HSBC put in a mixed performance. At constant exchange rates, profits rose 24 per cent in Europe to $2.38 billion, were up eight per cent to $2.05 billion in Hong Kong, and 24 per cent ahead at a shade under $600 million in North America.

Nonetheless, the bank's performance in its Hong Kong birthplace was ahead of analysts' expectations. The increase in earnings came despite a small contraction in the group's total loan book - led downwards by a fall in mortgage loans made in Hong Kong. Including major home-lending subsidiary Hang Seng Bank, the total of residential mortgage lending fell 3.5% to HK$175.58 billion from HK$181.96 billion previously. The fall came as a result of the continuing price war for mortgages and HSBC's caution in a difficult market. the reluctance of HSBC to expand too aggressively in a marketplace which continued to show shrinking margins.

"The mortgage business remains important to us and we are not going to walk away from it," said HSBC Chairman David Eldon, "But neither do I think that we should be leading the market downwards into this ever-decreasing spiral that we have got ourselves into."

Total deposits, however, were up HK$27.98 billion, or 2.13 per cent, at HK$1.34 trillion, and the bank showed no sign of losing depositors as a result of introducing fees and charges in response to the deregulation of interest rates in Hong Kong. Mr Eldon said the bank had ensured that it was possible for customers to avoid paying charges by providing fee-free banking.

Due to the poor performance of the stock market and lower-priced trades as activity shifted towards the bank's online services securities and broking income fell a dramatic 38%. But total income from wealth management, excluding securities and stockbroking, rose nearly a third to HK$1.3bn. "Increasingly, our branches are focusing on advice and support for customers' personal financial needs," said David Eldon.

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