HSBC shows cost of emerging market success

Mon Feb 27, 2012 8:13am EST
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By Steve Slater and Sarah White

LONDON (Reuters) - HSBC Holdings (HSBA.L: Quote), Europe's biggest bank, said paying rising wages in Brazil, China and other emerging market is the price of avoiding the slowdown being felt by most of its rivals as it posted the largest 2011 profit by a western bank.

HSBC (0005.HK: Quote), which makes over three quarters of its profits outside Europe and north America, said on Monday it was confident growth in Asia, Latin American and the Middle East would continue to offset sluggish European economies this year.

However, with costs rising 10 percent and its wages bill up over $1 billion in 2011, chief executive Stuart Gulliver told reporters it would be a challenge to meet the bank's 2013 target for reducing costs as a proportion of income.

Banks across Europe have been posting billions of dollars of losses as the euro zone sovereign debt crisis has hit their trading profits, and as they strive to meet tough new rules aimed at preventing a repeat of the 2007-09 banking crisis.

HSBC which has been relatively unscathed thanks to its strength in faster-growing emerging markets, said on Monday it expected that trend to continue, despite fears some of these economies were overheating and could see an abrupt slowdown.

"We remain comfortable with the emerging markets (outlook) and are confident that GDP growth in emerging markets will be positive and China will have a soft landing," Gulliver said. But he predicted the euro zone economy would flatline this year, with "marked recessions" in some southern countries.

HSBC, with 89 million customers in 85 countries, said pretax profit rose 15 percent to $21.9 billion in 2011, compared with a forecast for $22.2 billion in a Reuters poll.

The figure fell short of the group's record profit of $24.2 billion in 2007, but beat all other western banks that have reported so far for last year, including U.S. rival J.P. Morgan (JPM.N: Quote), which made a $19 billion profit.   Continued...

An HSBC bank branch is seen near the Burj Khalifa tower in Dubai, February 5, 2012. REUTERS/Jumana El Heloueh