Fourth-quarter profit at HSBC Bank Canada dipped 20 per cent lower than a year ago and its global parent reported mixed results as it says farewell to departing chief executive Stuart Gulliver.
In Canada, a $14-million dip in trading revenue and a return to more normal levels of impaired loans sapped profit in the final frame of 2017. But the bank's 2017 earnings still climbed by 30 per cent compared with 2016.
As parent company HSBC Holdings PLC has been shedding jobs and undertaking a turnaround strategy, HSBC Bank Canada has been expanding its operations, extending its reach in commercial banking – which accounts for about two-thirds of Canadian profit – in Eastern Canada. Interest income from commercial loans rose 17 per cent in the fourth quarter, helped by higher lending balances and the impact of rising interest rates.
"Canada remains a priority growth market for HSBC, attracting significant investments to drive growth and improve efficiency, and for risk and compliance initiatives," Sandra Stuart, CEO of HSBC Bank Canada, said in a statement. "This has clearly had an impact."
Given HSBC's strength in financing global trade, its Canadian arm is also well positioned to capitalize as it helps clients navigate uncertainty surrounding the renegotiation of the North American free-trade agreement.
Profit for the fourth quarter was $142-million, or 28 cents a share, down from $178-million, or 36 cents, a year earlier.
For the full year, profit was $630-million, or $1.26 a share, compared with $486-million, or 97 cents, in 2016. Operating expenses increased 2.5 per cent in the fourth quarter and 2.7 per cent for the full year, to nearly $1.3-billion, owing partly to investments in risk and compliance initiatives to combat financial crime.
HSBC Bank Canada's common equity tier 1 (CET1) capital ratio, a key measure of a bank's health, ended 2017 at 10.5 per cent, unchanged from a year earlier and broadly in line with that of other Canadian banks. Fourth-quarter results matched up unfavourably with the last quarter of 2016, when HSBC Bank Canada recovered $61-million in expected loan losses thanks to a return to better credit quality in the energy sector.
For the fourth quarter of 2017, impairments totalled $1-million, because of specific charges in commercial banking.
At global parent HSBC Holdings, loan impairment charges jumped 40 per cent higher, to US$658-million as the bank braces for expected losses from the collapse of British construction giant Carillion PLC, and accounting troubles at South African retailer Steinhoff International.
Globally, the bank boosted revenue by 7 per cent in 2017 to US$51.4-billion and increased profit to US$9.7-billion, up sharply from US$1.3-billion a year earlier.
And Mr. Gulliver – who retires after seven years as chief executive officer and 38 years at HSBC – said the bank had met eight of 10 targets he set in 2015, as he slashed costs by US$6-billion and shed US$338-billion in risk-weighted assets. Mr. Gulliver is succeeded by HSBC veteran John Flint, effective on Wednesday. The new CEO first joined the bank in 1989 and most recently served as global head of retail banking and wealth management.
HSBC also put its share buybacks on hold while it raises billions of dollars in extra capital, and the bank's share price was trading 3 per cent lower on the London Stock Exchange on Tuesday.