HSBC shares fall on weak underlying profits

LONDON: HSBC shares have fallen in early trading after the bank revealed shrinking underlying profits and warned of a very challenging outlook, the British Broadcasting Corporation reported on Wednesday.Its shares were 4.7 per cent lower in Tuesday mid-morning trading in London.Headline profit before tax was actually up by 66 per cent to $5.2bn (3.2bn) in the third quarter of the year, mainly thanks to a revaluation of its own debts, the value of which has fallen in fretful markets.But underlying profits fell by 36 per cent due to weak business, and bad debts in the United States.The outlook for the global economy is very challenging as problems in developed markets begin to affect growth rates around the world, the bank said in its interim results.HSBC repeated a warning that it may relocate its headquarters away from the UK, blaming new, stricter rules on capital - the amount of money they have to provision against potential future losses.The United Kingdom government plans to introduce a ringfence for banks, requiring them to put their UK operations in a separate subsidiary, and is requiring them to significantly raise their capital levels, particularly for the UK business.HSBC revealed that it had $13.7bn in direct exposure to troubled southern European economies - including $5.3bn to Italy - a comparatively modest figure compared with its $122bn in loss-absorbing core tier 1 capital.Business levels at its investment banking unit continued to suffer, with profits down by more than half compared with the previous quarter, to $1bn.Trading conditions showed some improvement during October, but they remain very difficult and continuing turbulence in global markets may result in further downside risk, the banks said.Meanwhile, impairment charges and other provisioning for credit risks increased by $1bn in the three month period, the banks said, with the bulk coming from its North American business.The shares have fallen foul of high expectations, said head of equities, Mr. Richard Hunter at stockbrokers Hargreaves Lansdown.HSBC remains largely exposed to economies in Asia which continue to enjoy burgeoning growth when compared to their peers in developed economies.The strength of the banks capital position and global growth prospects continue to underpin prospects.The lender is currently going through a major cost-cutting programme, which has already seen 5,000 job cuts, and is concentrating on its core Asia businesses.
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