HSBC has reported profits of £13.2bn ($18.8bn) for 2015 and warned of an uncertain economic backdrop as it cut the pay of its chief executive, Stuart Gulliver, to £7.3m.
The full-year profits were up just 1%, the bank said, because it had incurred fewer fines, paid out less in compensation to customers and made a gain on the sale of one its operations. In the fourth quarter of 2015 it made an unexpected loss.
The bank is also subject to a monitoring arrangement with US authorities following its £1.2bn fine for money laundering in 2012. The bank admitted the monitor had expressed “significant concerns” about the pace of progress in making changes required to bolster its compliance systems.
The monitor “did not certify as to the HSBC’s implementation of, and adherence to,” the deferred prosecution agreement signed at the time of the fine, the bank said.
Gulliver received £7.6m in 2015 while the bank was embroiled in a scandal – exposed by the Guardian and other publications – about the tax avoidance activities in its Swiss arm. The bank said it was continuing to co-operate with on-going investigations into this matter.
As HSBC kicked off the UK banking reporting season in one of the most febrile environments since the 2008 banking crisis, Gulliver said: “The current economic environment is uncertain but our diversified banking model, low earnings volatility and strong capital generation give us strength and resilience that will stand us in good stead.”
He is in the process of cutting 25,000 jobs to improve returns to shareholders.
Last week, HSBC ended a nine-month review of whether it should remain headquartered in the UK, and concluded it would stay put. However, it revealed 1,000 jobs could move to Paris if the UK voted to leave the EU.
The decision was taken after the UK government reduced the bank levy on bank balance sheets, which HSBC had warned would impede its ability to pay dividends and appeared to cut back on bashing bankers. Douglas Flint, the bank’s chairman, said: “It is too early to say whether this amounts to a new understanding between the industry and the public, but it is encouraging that the industry is once again gaining a voice at a time of great economic and geopolitical uncertainty”.
The bank also said the introduction of UK rules on pay that require bonuses to be deferred over seven years, rather than three, required changes to its pay plans. It said these rules “are more stringent than the rules in force in the EU, US, and Asia-Pacific, making it challenging for UK banks to attract talent with transferable skills or from other industries. We believe more regulator coordination is required to ensure there are more globally consistent remuneration standards and a level playing field”.
Under this new plan, Gulliver’s possible annual pay is being cut to £9.9m from as much as £13m in the past. The bank is reducing the amount paid into his pension in response to investor concerns.
The bank also disclosed that more that more than 453 of its 264,000 staff were paid €1m (£780,000) or more.
The bank has set aside $4.5bn – up from $3.3bn a year ago – to cover investigations into tax-related matters and foreign exchange manipulation as well as a court case involving its US arm and compensation for payment protection insurance (PPI). The provision for PPI misselling increased by $549m during the year – a move which other banks due to report in the coming days are expected to have to follow.
In the pages of legal warnings included its 502-page annual report, HSBC also listed a string of matters that included ongoing litigation involving the collapse of the investments by Bernard Madoff, litigation dating back to the subprime mortgage crisis in the US and investigations into Fifa. It said it had a $1.2bn provision to cover the foreign exchange rigging scandal.
Amid concern about the exposure of banks to the plunging oil price, an analyst at Bernstein said the bank had a taken a $400m charge in to oil and gas exposures, which amounted to $29bn in total. The Bernstein analysts said the 13% fall in underlying income was more than they had expected.
HSBC raised its dividend to $0.51 from $0.50, a total payout of $10bn for shareholders. Flint said: “In approving the dividend increase, the board noted that prospective dividend growth remained dependent on the long-term overall profitability of the group and delivering further release of less efficiently deployed capital.”
This article was written by Jill Treanor, for theguardian.com on Monday 22nd February 2016 05.36 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010