HSBC is to increase dividend payouts this year, a sign that Europe's largest bank has regained its financial strength even though full-year profits fell more than expected.
The London-based bank is in the last year of a three-year restructuring under chief executive Stuart Gulliver, where it has closed or sold 47 businesses and cut 38,000 jobs. This has squeezed costs and cut back on risk to re-establish HSBC as one of the world's most strongly capitalised banks.
Already one of the highest dividend payers among Britain's blue-chip companies, HSBC said on Monday it would bump up its first three interim payouts on 2013 earnings by 11 percent to 10 cents per share.
"This is the beginning of the return to a more normal usage of our earnings," Gulliver said in a conference call.
But a weak global economy and increased cost of regulation imposed since the financial crisis across dozens of countries has made improving profitability more difficult.
Banks around the world have had to cut jobs and adapt to much stricter regulations after the crisis, making it tougher to produce the high returns the industry had grown used to.
HSBC's 2012 pretax profit fell six percent from the previous year to $20.6 billion (13.7 billion pounds), below the average forecast of $22.7 billion from 28 analysts polled by Reuters.
This partly reflected a $5.2 billion loss on the value of the bank's own debt
Gulliver, who took the helm at the start of 2011, insisted the bank could still meet a 2013 target for return on equity, a key measure of banking sector profitability, of 12-15 percent despite it falling to 8.4 percent last year.
"Whilst the operating environment for financial institutions remains difficult, our core business will continue to reap the benefit of recovering economic growth in mainland China and its positive impact on other faster-growing regions," he said.
HSBC's shares fell more than three percent in London, lagging the benchmark Stoxx Europe 600 Banks Index, which was 1.4 percent lower. HSBC's stock had risen nearly 30 percent over the past 12 months, outperforming the benchmark's 9 percent gain in the same period.
"The results have been slightly disappointing from an earnings perspective," said Gary Greenwood, analyst at Shore Capital, which has a "Hold" recommendation on the stock.
"This time last year people were disappointed with its capital position but during the year it resolved that."
TOP MARKS FOR CAPITAL
HSBC's annual report, also published on Monday, gave Gulliver got top marks for building up the bank's capital strength and dividend payout. But he got zero for return on equity, cost efficiency and compliance.
The bank was fined a record $1.9 billion in December for anti-money laundering lapses in the United States and Mexico which Gulliver called "shameful."
He is hoping a more streamlined structure will ensure risk and compliance are better managed across a bank that spans 80 plus countries and 60 million customers.
The bank said on Monday it had set aside an extra $1.4 billion in 2012 to cover claims for mis-selling insurance products and interest rate hedging products in Britain.
HSBC is one several banks being investigated as part of an international probe into interest rate rigging. So far, UBS, Royal Bank of Scotland and Barclays have been fined $2.6 billion for the role their employees played in the manipulation.
The scandals that have emerged from industry since the crisis have increased pressure to restrain risk-taking and excess in sector. Last week, the European Union imposed curbs on bonuses paid out to bankers.
HSBC's bonus pool shrank to $3.689 billion last year from $4.223 billion in 2011. Gulliver's own pay fell to 7.4 million pounds from eight million.
Echoing comments from Deutsche Bank co-chief executive Anshu Jain, HSBC warned about the high cost of regulators pursuing tougher national regimes.
"An increasing number of countries now appear to be acting unilaterally, thereby putting globally consistent regulation at risk of fragmentation and ‘balkanising' the capital and liquidity resources of firms," HSBC Chairman Douglas Flint said in the bank's results statement.
On an underlying basis, pretax profit rose 18 percent boosted by a strong performance in commercial banking and lower loan impairments in North America, where HSBC is winding down its consumer and mortgage lending books.
The bank made annualised cost savings of $3.6 billion last year, above a target of $3.5 billion.
HSBC also has a listing in Hong Kong, where it was founded in 1885.
(Additional reporting by Carmel Crimmins; Writing by Carmel Crimmins. Editing by Erica Billingham and Jane Merriman)