Relief for HSBC's nervous investors
BANKING group HSBC has reassured nervous investors by reporting lower-than-expected losses from bad and doubtful debts. Britain's second-biggest listed company raised its bad-debt provision by $274m (£174.5m) to $715m for the six months to June - $200m less than analysts had feared.
Pre-tax profits fell 7% to $5.1bn, a better performance than the forecast drop of as much as 18%. Finance director Douglas Flint said HSBC had relatively modest exposure to US telecoms and technology companies and to US junk bonds - the problem areas which have hit other banks. The shares were resilient at 700p, down 4p, in a plunging market.
The bank also signalled a pioneering accounting change which, if adopted by other UK blue-chips, would wipe billions of pounds from corporate profits.
The group said it was 'giving consideration' to a more conservative accounting treatment of its share option costs, which would slash its profits by about £175m a year.
HSBC's decision follows a similar move in the past few weeks by several US corporations including Coca-Cola and The Washington Post, thanks indirectly to prodding by Warren Buffett, the influential billionaire investor.
A similar move by other British firms would dent reported profits, though it would make no difference to their cash position. Tesco's profits would drop by 19%, Reuters' by 16%, Pearson's by 14% and Vodafone's by 10%, according to research earlier this year by HSBC Investment Bank. Some technology companies, where options are a key part of remuneration, could be more seriously hit. Chip designer Arm Holdings could have its profits wiped out if it adopted the reform.
HSBC's Flint said the reform was very likely to happen and could be put into place for the current year's accounts. 'Times have moved on,' he said. 'We believe it (the company share option scheme) is an expense.'
Early reform by HSBC would put strong pressure on other British companies to follow suit early. The International Accounting Standards Board only envisages bringing new rules into force by 2004. So far in Britain only Boots among blue-chips has made attempted to account for options as a cost in the profit and loss account.
More than 70,000 HSBC employees share in the company option scheme. The expense in the first half of this year was $127m. HSBC has been reflecting the cost in notes to its US accounts since 1997 but the proposed move would mean reflecting the cost in its primary UK financial statements.
Reporting today's figures, chairman Sir John Bond said the decline in interim pre-tax profits 'showed once again the resilience of HSBC in difficult market conditions'.
HSBC sweetened the result with an 8% increase in the dividend to $0.205 a share.
Referring to recent markets turmoil, HSBC said the outlook for the rest of 2002 was more likely to be shaped by sentiment than by economic fundamentals. Consumers were becoming more cautious. 'Without growth in corporate profitability and investment, a stock market rebound is unlikely,' it said, adding that there was unlikely to be a 'quick and easy upturn' in world markets. 'We continue to position HSBC for a subdued environment.'
Banking titan who shows the old ways work best
