Record profit for a UK bank

LONDON - HSBC Holdings reported record profits for a UK bank of US$21 billion ($32 billion) yesterday, up 11 per cent on the year and above analysts' expectations, as strong emerging markets offset higher spending at its investment bank.

Europe's biggest bank said it made profit of US$20.97 billion before tax in 2005, up from US$18.94 billion in 2004 and above an average profit forecast of US$20.56 billion, according to 13 analysts polled by Reuters.

HSBC, whose operations span 77 countries, said record results in Mexico, Turkey and the Middle East spearheaded growth. It said China, Brazil, India and other Asian countries were also all buoyant.

Profits dipped in its investment banking unit as it paid out higher bonuses and spent more building the business, but investors were encouraged that spending growth would now slow.

"It's good to see that they are optimistic on improving productivity in the investment bank. Cost growth there has been a drag in the recent past, so that's a positive," said Victoria Stewart, fund manager at Royal London Asset Management. "It's clear that they're very excited about Asia and emerging markets growth. There's a strong message coming out that they see a lot of opportunities because of increased global trade," she said.

HSBC's London-listed shares were up 1.9 per cent at £9.93, valuing the bank at about £112 billion ($300 billion) - Europe's biggest bank.

HSBC said it would continue to focus on organic growth over acquisitions, saying there were few targets that offered better returns than investing in its own operations.

"Last year prices made buying other people's infrastructure, in our view, expensive," Douglas Flint, finance director, said.

John Bond, HSBC's executive chairman, signalled surplus cash will be spent on growing businesses rather than being returned to shareholders through share buybacks or a higher dividend payout, as some analysts have urged it to do. Bond steps down in May after 45 years at the bank.

Underlying profits in the UK retail banking unit rose 17 per cent, as an improvement in cost efficiency countered a near doubling in bad debts to £622 million.

Growth was led by the personal financial services division, which provides savings accounts, mortgages and other services to more than 100 million personal customers. The unit's profit jumped 17 per cent to US$9.9 billion.

- REUTERS