Buoyant trading in Asia helped HSBC Holdings PLC, Europe's biggest bank by market value, report a 28 percent increase in full-year profit Monday, but the bank disappointed investors as costs rose and underlying profit declined.
HSBC said its net profit for 2011 was $16.8 billion, up from $13.2 billion, a result flattered by a $4.2 billion accounting gain on the value of own debt. Costs as a percentage of income rose from 55.2 to 57.5, well over the bank's target between 48 and 52.
Net operating income was 11 percent higher at 60.2 billion, led by a 12 percent gain in revenues in Asia. HSBC said underlying pretax profit was down $1.2 billion to $17.7 billion.
The bank's shares were down 4.5 percent at 549 pence in late afternoon trading in London.
"HSBC has reported profits short of market expectations, its core tier one and cost efficiency ratios deteriorated in 2011 and although its return on equity did improve to 10.9 percent it was outside the groups strategic target of 12-15 percent, " said Nic Clarke, analyst at Charles Stanley & Co.
The bank's chief executive, Stuart Gulliver, said the company had made a good start on a three-year program of restructuring.
"We gained traction in our strategy designed to simplify the structure and improve the management and control of the group, thereby improving returns and positioning HSBC for growth," Gulliver said.
He pointed to China, India, Malaysia, Brazil and Argentina as the fastest-growing sources of revenue for the bank.
HSBC closed or sold 16 businesses in 2011, and a further three so far this year.
The Commercial Banking division posted a record pretax profit of $7.9 billion in 2011 after a 31 percent increase, while the retail banking and wealth management saw its profits rise 11 percent to $4.3 billion. However, the global banking and markets division saw profits slip 24 percent to $7 billion.
Gulliver said the results were hurt by continuing problems in the United States, where the bank reported an underlying loss of $2.4 billion last year, up from the previous year's comparable loss of $2.2 billion. HSBC is selling its profitable credit card and retail services business in the U.S. while running down the rest of the portfolio acquired from its takeover of Household Finance.
HSBC's performance contrasted sharply with other U.K. banks.
Barclays earlier announced a 15 percent fall in 2011 net profit to 3 billion pounds. Royal Bank of Scotland, 82 percent owned by taxpayers, nearly doubled its annual loss to $2 billion while Lloyds Banking Group, 41 percent nationalized, lost $2.8 billion.
Elsewhere in its results statement, HSBC said it aside $3.4 billion for bonus payments to employees, while raising the full-year dividend 14 percent to 41 cents per share.