HSBC’s 2016 pre-tax profit plunged by 62%

HSBC annual pre-tax profit plunged by 62 per cent for 2016, falling way below what analysts had forecast.

The British bank reported pre-tax profits of $7.1 billion (£5.7 billion) for 2016, down from $18.9 billion (£15.2 billion) reported a year earlier.

According to data gathered by Thomson Reuters, the average analyst estimate of pre-tax profits for 2016 was $14.4 billion.

HSBC 2016 $m 2015 $m
Financial highlights
Reported profit before tax 7,112 18,867
Adjusted profit before tax 19,300 19,528
Return on average ordinary shareholders’ equity (annualised) 0.8% 7.2%
Reported revenue 47,966 59,800
Adjusted revenue 50,153 51,419

HSBC said in its announcement that the major decline in profit was attributed to a $3.2bn impairment of goodwill in GPB in Europe, costs to achieve of $3.1bn, adverse fair value movements of $1.8bn arising from changes in credit spreads on its own debt designated at fair value, and the impact of the bank’s sale of operations in Brazil.

“This decline principally reflected the impact of significant items, most of which had no impact on capital, even though they were material in accounting terms,” said Douglas Flint, Group Chairman.

“On the adjusted basis used to measure management and business performance, profit before tax was $19.3bn, broadly in line with the $19.5bn achieved in the prior year,” he added.

Flint said 2016 would “be long remembered for its significant and largely unexpected economic and political events.”

“These foreshadowed changes to the established geopolitical and economic relationships that have defined interactions within developed economies and between them and the rest of the world,” he said.

“The uncertainties created by such changes temporarily influenced investment activity and contributed to volatile financial market conditions.”

Mr Flint also cautioned over risks from “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, and the impact of a stronger dollar on emerging economies with high debt levels”.

Relocating employees from London to Paris.

HSBC added that it may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop.