MercoPress. South Atlantic News Agency

Europe’s biggest bank with record profits from operations in Latam and Asia

Brazil and Argentina played leading roles in boosting HSBC performance

HSBC Holdings Plc said a 1 billion dollars increase in its wages bill in Brazil, China and other emerging markets was the price of avoiding the stagnant growth which has dogged some rival lenders more dependent on Europe.

Posting a pre-tax profit just shy of 22 billion dollars, the largest in 2011 by a western bank, HSBC said on Monday it was confident growth in Latin America, Asia and the Middle East would continue to offset sluggish conditions in Europe.

However, with costs rising 10% in 2011, due partly to surging wages in emerging markets, 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 hefty 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, Europe's biggest bank and which makes over three quarters of its profits outside Europe and north America, has been relatively unscathed thanks to its strength in faster-growing emerging markets.

It said 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 (outlook in) emerging markets and are confident that GDP growth in emerging markets will be positive and China will have a soft landing,“ Gulliver said.

In contrast, the Euro zone economy would flat-line this year, with ”marked recessions” in some southern countries, he added.

HSBC, with 89 million customers in 85 countries, said pre-tax profit rose 15% to 21.9 billion dollars in 2011 compared 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 US rival J.P. Morgan, which made 19 billion.

The world's most profitable banks in recent years have been Chinese groups ICBC, which made a 215 billion Yuan (34.2 billion) pre-tax profit in 2010, and China Construction Bank, which made 175 billion Yuan (27.8 billion).

HSBC's profit was boosted by a 3.9 billion accounting gain on the value of its debt. Stripping that out, underlying pre-tax profit fell 6 percent to $17.7 billion.

HSBC said it paid out 4.2 billion dollars in bonuses, down 2% on 2010. Banks are coming under intense pressure from politicians and the public to rein in pay awards because of the role of the sector in the world's economic problems.

Gulliver was paid 8 million pounds (12.7 million) last year - including a 2.2 million bonus - down from 8.4 million in 2010, when he ran HSBC investment bank. Another banker, whom HSBC declined to name, netted 7 million pounds, while 192 employees were paid over 1 million pounds each, including 64 in Britain.

Gulliver said HSBC would continue to pay competitively, particularly in emerging markets, as the growth being delivered made the investment worthwhile.

“Wage price inflation and competition for staff is very high. We are not the only people to work out that the emerging markets have high GDP growth and there's a limited pool of talent,” he said on a conference call.

In the last year HSBC has cut 11.000 jobs and sold 19 businesses as part of Gulliver's business plan. Deals already struck will cut 50 billion in risk-weighted assets from its balance sheet.

HSBC star division was commercial banking, where profits jumped 31% to 7.9 billion. In a throwback to its roots as a bank specializing in trade finance, last year's growth was led by increased business in Brazil, Hong Kong, China, Mexico, Argentina and Singapore.