HSBC reports $3.4 bn Q4 pre-tax loss as revenue falls sharply

HSBC Holdings Plc, Europe's largest bank, reported a pre-tax loss of $3.4 billion for the fourth quarter of 2016 pulled down by surprise fall in revenues, prompting the bank to look for cost-cutting measures.

HSBC's adjusted pretax profit for the fourth quarter of 2016, which excludes one-time items, stood at $2.62 billion, a 39-per cent jump from the previous year's quarter, the bank said in a statement today.

HSBC also increased its cost-cutting target by $1 billion to $6 billion of savings, while saying it faces more than $3 billion of revenue headwinds in 2017, including currency movements and record-low interest rates in the UK.

Adjusted revenue in the fourth quarter fell 3 per cent to $11 billion. Part of the drop was due to swings in value of swaps tied to the firm's own debt. Operating costs rose 3 per cent to $8.4 billion.

Profit in all four of the bank's operating divisions and all five of its geographic regions fell short of analysts' estimates. The bank reported a common equity Tier 1 ratio of 13.6 per cent, compared with 13.9 per cent at the end of September.

Chief executive Stuart Gulliver is battling five years of declining revenue at the bank as he pares back HSBC's sprawling global footprint and reduces expenses.

''The miss was chiefly driven by lower revenues,'' including in wealth management, analysts at Goldman Sachs Group Inc. said in a note to clients. ''Investor focus will be on HSBC's revenue outlook.''

The unadjusted loss was driven by $6.1 billion of ''significant items'' in the quarter. The items included a $2.4 billion write-down of the value of its European private bank and a $1.6 billion adjustment in the bank's own credit spreads.

HSBC bought its European private-bank businesses in 1999, for $9.85 billion from Edmond J Safra's Republic New York Corp and Safra Republic Holdings SA. The Geneva unit was at the center of the so-called Swiss Leaks scandal in 2015, which showed the bank's Swiss unit harbored the cash of tax dodgers, drug cartels and arms dealers. HSBC said it has since overhauled compliance and risk controls.

Meanwhile, HSBC has extended a share buy-back programme with plans to spend $1 billion buying back its stock in the first half of this year, adding to $2.5 billion of repurchases it made last year using capital released by the sale of its Brazil unit.

HSBC is looking for additional repurchases this year, which Goldman Sachs analysts expects to be around $3.5 billion in 2017.

The bank's Hong Kong stock lost 3.4 per cent to HK$66.65 as of 2:19 p.m. local time, the biggest intraday drop since 9 November. HSBC shares in London have gained 58 per cent in the past 12 months through yesterday, the second-most of any major European bank.