HSBC’s one-off costs eat away at bottom line

HSBC spooked investors yesterday by unveiling a sharp jump in costs on the back of one-off charges and Asian inflation, with chief executive Stuart Gulliver (pictured) warning that it would take two to three years to achieve the necessary efficiency savings.

Pre-tax profits slumped 9.8 per cent compared to the same quarter last year to $5.5bn (£3.35bn) despite revenues falling only 4.9 per cent to $17.93bn. As a result, the bank’s cost-to-income ratio – a key metric Gulliver has picked as a benchmark for progress – soared to 60.9 per cent, versus a 48-52 per cent target.

However, Gulliver said that stripping out one-off charges, “we probably are hitting flat water in terms of our costs”.

The charges include a $440m provision for the cost of paying compensation to customers who were mis-sold payment protection insurance (PPI) – lower than expected because the bank left the PPI market in 2007.

The cost-to-income ratio also suffered from the expense of the bank’s restructuring programme, losing $78m on IT changes in the US, $67m on redundancies in Latin America and taking a $70m accounting hit due to new practices on declaring deferred bonuses.

The bank’s bottom line was also hit by the foreclosures issue in the US, stagnant American property prices and spiralling inflation in emerging markets.

Despite rising prices, however, Gulliver insisted: “I see nothing that gives me concern at the moment that we’re writing business into a bubble.”

But he added: “Inflation is an issue for us and one of the reasons we’ll have to be very disciplined about how we spend money in order to grow in emerging markets.”

Gulliver has promised to outline the details of cost control measures during a strategic review day for investors tomorrow, but remained tight-lipped yesterday.

He also reiterated his concern about the UK’s bank levy. Asked whether HSBC?could relocate its headquarters, he said: “The issue for us is the bank levy – we estimate it will cost us $600m this year, of which $400m applies to our non-UK operations.”