HSBC Holdings plc’s (HSBC - Analyst Report) earnings for third-quarter 2014 came in at 17 cents per share, 6% above the prior-year quarter figure. Net profit was $3.6 billion, up 4% year-over-year.
Results in the reported quarter included $378 million of provision regarding FCA investigation into alleged foreign exchange manipulation charges, $701 million related to UK customer redress programs and $550 million pertaining to the settlement with the U.S Federal Housing Finance Authority.
Lower loan impairment charges and stable revenues acted as tailwinds. Further, capital and profitability ratios remained strong. However, a continued rise in operating expenses was the major dampener.
Performance in Detail
Underlying profit before tax was $4.4 billion, declining 12% from the prior-year quarter. The fall was mainly due to lower revenues and a rise in operating expenses, partly offset by lower loan impairment charges.
Total revenue (on an underlying basis) was $15.6 billion, including the effect of several significant items, and almost stable compared with the year-ago quarter figure. Excluding the impact of these, revenues grew marginally driven by growth in Global Banking, and Markets and Commercial Banking segments.
Underlying total operating expenses rose 15% year over year to $11.1 billion, including the impact of above-mentioned non-recurring items. Notably, excluding these significant items, total expenses climbed 6% due to increased risk, compliance and related costs.
Underlying cost efficiency ratio increased to 71.2% from 61.7% in the prior-year quarter. A rise in efficiency ratio indicates fall in profitability.
Performance by Business Line (on underlying basis)
Retail Banking and Wealth Management:Â The segment reported $1.3 billion in pre-tax profit, down 18% from the prior-year quarter. The decline was due to a rise in operating expenses, partially offset by higher revenues and a fall in loan impairment charges.
