HSBC Holdings PLC, Europe's largest bank, pledged on Monday to increase its dividend despite a disappointing drop in annual profits as disposals and strong growth in Hong Kong and other core Asian markets boosted its balance sheet.
The London-headquartered bank has closed or sold 47 businesses and cut 38,000 jobs over the past two years to squeeze costs, manage risk and re-establish itself as one of the best capitalised banks in the world.
Already one of the highest dividend payers among Britain's blue-chip companies, HSBC said it would bump up its first three interim payouts on 2013 earnings by 11 per cent to 10 cents per share.
"This is the beginning of the return to a more normal usage of our earnings," Chief Executive Stuart Gulliver said in a conference call.
But improving profitability has proved more difficult due to a weak global economy and the cost of regulation across dozens of countries.
Gulliver, who took the helm at the start of 2011, insisted the bank could still meet its 2013 target for return on equity, a key measure of profitability, of 12-15 per cent despite it falling to 8.4 per cent last year.
"Whilst the operating environment for financial institutions remains difficult, our core business will continue to reap the benefit of recovering economic growth in mainland China and its positive impact on other faster-growing regions," he said.
The bank said on Monday it made a 2012 pretax profit of $20.6-billion (U.S.), down 6 per cent from the previous year and below the average forecast of $22.7-billion from 28 analysts polled by Reuters. Profits were hurt by a $5.2-billion loss on the value of its own debt.
"The results have been slightly disappointing from an earnings perspective," said Gary Greenwood, analyst at Shore Capital, which has a "Hold" recommendation on the stock.
"But its balance sheet has strengthened quite a bit over the year. This time last year people were disappointed with its capital position but during the year it resolved that."
HSBC also has a listing in Hong Kong, where it was founded in 1885.
HSBC was fined a record $1.9-billion in December for anti-money laundering lapses in the United States and Mexico which Gulliver called "shameful".
He is hoping a more streamlined structure will ensure risk and compliance are better managed across a bank that spans 80 plus countries and 60 million customers.
The bank said on Monday it had set aside an extra $1.4-billion to cover claims for mis-selling insurance products and interest rate hedging products in the UK.
HSBC is one of a number of banks being investigated as part of an international probe into interest rate rigging. So far, UBS, Royal Bank of Scotland and Barclays have been fined $2.6-billion for the role their employees played in the manipulation.
HSBC's bonus pool shrank to $3.689-billion last year from $4.223-billion in 2011 and Gulliver's own pay fell to £7.4-million ($11.1-million U.S.) from £8-million.
The bank said it was too early to say what the impact of an EU-imposed curb on banker bonuses would be.
On an underlying basis, pretax profit rose 18 per cent boosted by a strong performance in commercial banking and lower loan impairments in North America, where HSBC is winding down its consumer and mortgage lending books.
The bank made annualised cost savings of $3.6-billion last year, above a target of $3.5-billion.
Echoing recent comments from Anshu Jain, the co-chief executive of Deutsche Bank, HSBC warned about the high cost of regulators pursuing tougher national regimes.
"An increasing number of countries now appear to be acting unilaterally, thereby putting globally consistent regulation at risk of fragmentation and 'balkanising' the capital and liquidity resources of firms," HSBC Chairman Douglas Flint said in the annual results statement.