Keep the faith with grumpy HSBC

HSBC is not a happy bunny. Management laid the blame for a 12% drop in half-year profit squarely at the door of regulators as the banking heavyweight spent heavily on "unprecedented" demands meeting new industry standards. Still, the numbers - and a generous dividend - have been well-received in the City.

"These results illustrate the challenge of funding a considerable expansion of risk and compliance resources as well as the operational and structural changes needed to address new regulatory and public policy requirements at a time of limited revenue growth opportunities," moaned chairman Douglas Flint.

All the extra work is "hugely consumptive of resources that would otherwise be customer facing," he said, complaining that the programme is "increasingly fragmented, often extra-territorial, still evolving and still adding definition."

Profit before tax fell to $12.3 billion (£7.3 billion) in the six months to June, $1.7 billion less than the year before on underlying revenue down 4%, or $1.4 billion, to $31.4 billion. Underlying operating expenses grew by 4% to over $18.2 billion following extra spend on risk, compliance and global standards - it would have been more had the bank not got a grip on costs elsewhere.

There was, however, a sharp drop in impairments during the period, down from almost $3 billion a year ago to $1.8 billion this time. That included a $367 million litigation provision following a review of compliance with the UK Consumer Credit Act and another $234 million payment protection insurance (PPI) charge, too.

Across the divisions, commercial banking did well, with Asia helping drive profit up by 15% to $4.8 billion, partially offsetting a poor period for global banking and markets where low market volatility sliced 12% off profit to $5 billion.

And after further disposals and portfolio run-off, HSBC's end point common equity tier 1 ratio improved to 11.3% from 10.9% in January and 10.1% a year ago.

Numis Securities expects a 15% increase in full-year pre-tax profit to $25.8 billion, giving earnings per share of 92.1 cents.

HSBC's share price has rallied in recent weeks - only Royal Bank of Scotland has done better since 10 July – and at 647p, trade on less than 12 times forward earnings and under 1.4 times tangible net asset value (TNAV). There’s significant technical support at around 585p (and resistance in the 645p region), too. A prospective dividend yield of over 5% is another significant draw for any investor.

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