FT.com / Lex - Lex live: HSBC
HSBC is doggedly pursuing its ambition to be the world’s local bank.
It now makes more than $100m a year in Turkey and Brazil, more than $500m in France and Mexico and over $4bn in the US - all countries in which it had little or no presence five years ago.
This determination comes at a price. Underlying costs rose 8.5 per cent in 2004, a full percentage point faster than underlying income. And the second-half trend was worse than the first. Pre-tax profit growth, up a reported 37 per cent to nearly $18bn, only looked as good as it did due to exceptionally low bad debt charges and bumper disposal gains. This is likely to be repeated this year: loan loss provisions are starting to rise again, though gently. Margins at Household, the consumer finance business bought in 2003 are under pressure from rivals and a more conservative loan policy.
The bigger question, however, is about those costs. HSBC is in an investment phase and points to excellent returns on previous acquisitions, such as its Mexican bank, and organic expansion, like the record foreign exchange dealing profits it netted in 2004. This time, however, much of the money is being pumped into expanding in horribly competitive investment banking rather than the mortgages, credit cards and corporate loans it is more familiar with. On about 14 times forward earnings, HSBC remains a sound bet on global economic growth. But it carries more risk than its marketing slogan suggests.
