Rising protectionism, Brexit fears spark HSBC profit fall

Protectionist fears under Donald Trump and uncertainties caused by Brexit sparked a huge plunge in 2016 profits, global banking giant HSBC said Tuesday.

Unveiling an 82 per cent fall in its net profit, the bank said ongoing volatility and surging populism around the world would continue to hit its bottom line.

"We highlight the threat of populism impacting policy choices in upcoming European elections, possible protectionist measures from the new US administration impacting global trade, uncertainties facing the UK and the EU as they enter Brexit negotiations," group chairman Douglas Flint said in a statement filed to the Hong Kong stock exchange.

Flint said the bank was looking for worldwide agreement on financial rules to avoid possible "fragmentation in the global regulatory architecture as the new US administration reconsiders its participation in international regulatory forums".

Trump wants to dismantle some of the restrictions on banks put in place after the 2008 financial crisis, rules his Republican Party says have hampered Wall Street's ability to make money.

Observers worry that any such move to loosen controls could leave European and Asian-based banks at a disadvantage compared to their US counterparts.

HSBC said net profits for 2016 fell to US$2.48 billion (S$3.52 billion), down from US$13.52 billion in 2015.

That included a US$3.45 billion pre-tax loss in the final quarter of the year, with reported profit before tax falling 62 per cent to US$7.1 billion for 2016.

Dickie Wong, director of research at Kingston Securities, said the results reflected the changing geopolitical environment in the wake of Trump's insurgent campaign to capture the White House and Britain's vote to leave the European Union.

In regards to "the interest rate environment and Donald Trump's policies - no one knows what will happen", Wong said.

Shares in the bank fell 3.6 per cent during afternoon trade at the Hong Kong stock exchange following the results announcement.

In the regulatory statement, Flint said the political sea-changes that had rocked the world in 2016 had contributed to "volatile financial market conditions".

On the impact of Brexit, Flint reaffirmed earlier reports that "current contingency planning suggests we may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop".

The bank also said the process to find a successor to Flint in 2017 "remains on track".

Like most global banks, HSBC has been struggling to boost profits as it grapples with the uncertainty thrown up by Britain's looming exit from the EU.

HSBC’s dirty secrets exposed

  • A file picture taken on July 2, 2013 shows French former employee of HSBC Private Bank Herve Falciani looking on during his hearing at the National Assembly in Paris
  • A former boss of HSBC, Stephen Green, has stepped on February 14, 2015 down from his position with a financial services lobby group after allegations that the bank helped hundreds of people dodge taxes during his time in charge.
  • Files leaked by Herve Falciani, an IT worker turned whistleblower at HSBC's Swiss division, allegedly show that the bank actively helped its clients hide millions of dollars of assets and evade taxes, and provided services to drug smugglers and corrupt businessmen and politicians.
  • The revelations came to light earlier this month as a result of the SwissLeaks project led by French newspaper Le Monde and the International Consortium of Investigative Journalists (ICIJ), which worked with more than 140 reporters in 45 countries to analyse the 60,000 files leaked by Falciani.
  • The total value held in the bank accounts has been reported to amount to US$119 billion (S$161 billion), involving clients in more than 200 countries.
  • Members of the association took pieces of furniture out of the bank to symbolize the recovery of citizens' property from a bank charged with tax evasion.
  • The leaks come at a time when tax authorities around the world, especially in the West, have been clamping down on tax evaders as a way to bolster government revenues in the wake of the 2008 financial crisis.
  • The leaked files show that in 2004 and 2005, HSBC Swiss bankers held at least 1,645 meetings in 25 countries with clients or prospective clients
  • The meetings were held in places as diverse as luxury hotels in Paris and Tel Aviv, a piano bar in Antwerp, the airport in Pointe- Noire, Congo, and a summer residence in Copenhagen.
  • The files show bank employees blatantly discussing how to get around the law by, for example, helping clients to open offshore trusts and shell corporations to conceal their assets from the taxman.

British Prime Minister Theresa May has indicated a willingness to give up access to the European single market as the price for getting control over immigration.

Companies like HSBC that have large operations in London are worried that such a settlement would present them with difficulties accessing the huge market of the EU.

The profit plunge comes after HSBC in 2015 unveiled a radical overhaul aimed at cutting annual costs by US$5 billion over two years by shedding 50,000 jobs worldwide, exiting unprofitable businesses and focusing more on Asia.

"I do think their cost savings is still on track," financial analyst Jackson Wong of Huarong International Securities told AFP.

"That's one thing that will be a little bit encouraging," Wong said.

The bank's chief executive Stuart Gulliver in the Tuesday filing announced a share buy-back of up to US$1 billion for the first half of 2017, adding to the total of US$2.5 billion in repurchases made last year.