HSBC cut its profitability targets due to the cost of tougher global bank regulations on Monday, and disappointed investors as its 2010 earnings came in slightly below analysts' forecasts.
HSBC's pretax profits for the year ending December 31 more than doubled from 2009 to $19 billion, but this figure came in below the average pretax profit forecast of $20 billion, according to analysts polled by Reuters Estimates.
HSBC said it had made a good start to the year but new chief executive Stuart Gulliver cut the bank's long-term return on equity (ROE) target to 12-15 percent from a previous 15-19 percent target.
HSBC shares, which had been trading up 2 percent before the results, fell back and were down 3.1 percent at 689.2 pence by 0910 GMT.
TOUGHER CAPITAL RULES
It's about a billion light at the pretax level and pretty much everybody had said it was going to be $20 billion pretax and $19 billion underlying and it wasn't and they cut the ROE (return on equity) target again so that's the bad news, said MF Global analyst Simon Maughan.
Banks around the world are under pressure from regulators to raise capital to strengthen their balance sheets, in order to prevent a return of the 2008 credit crisis which resulted in the collapse of Lehman Brothers.
HSBC's new finance director Iain Mackay said the bank's new, scaled back return on equity target not only reflected the tougher capital requirements for banks but also global economic uncertainty, as highlighted by recent political tensions in the Middle East and north Africa.
We've targeted 12 to 15 percent through the cycle for return on equity, principally taking into consideration what we view as a somewhat unstable and uneven economic recovery over the coming years as well as much higher capital requirements, said Mackay.
HSBC's decision to cut back its return on equity targets followed a similar move by rivals Barclays and Credit Suisse.
Both those lenders scaled back their profitability expectations, saying that their returns would be held in check by regulatory requirements to hold more capital.
Gulliver took over as CEO from Michael Geoghegan at the start of the year. Gulliver, Chairman Douglas Flint and Finance Director Iain MacKay took the helm after a boardroom power struggle erupted in September.
HSBC's annual report, also released on Monday, showed Gulliver was paid 6.2 million pounds last year, when he ran investment banking. That included a 5.2 million pound bonus and compared with 9.8 million pounds in 2009.
(Additional reporting by Jon Hopkins, Sarah Young and Sarah White; Editing by Rosalba O'Brien and Jon Loades-Carter)