HSBC Holdings missed expectations with a $7 billion annual profit after bad debts rose and risked a public backlash by paying three investment bankers over 9 million pounds ($13.7 million) each.
Europe's biggest bank said on Monday that Stuart Gulliver, head of investment banking, would receive 9.8 million pounds ($14.9 million) for 2009, mostly in shares over the next three years. Another two unnamed bankers will get over 9 million pounds after record earnings from their unit.
HSBC's 2009 profit of $7.1 billion was down from $9.3 billion in 2008 and falling short of an expected pretax profit of $11.4 billion, according to the average forecast from analysts polled by Thomson Reuters I/B/E/S.
Profit for global banking and markets (GBM) more than trebled to a record $10.5 billion as it benefited from buoyant capital markets.
By 1126 GMT HSBC's London-listed shares were down 5 percent at 683.6 pence.
Revenues were depressed more than expected by the impact of low interest rates, while GBM's revenues were not as strong as expected and insurance claims were high, analysts said.
There are a number of negative issues which in aggregate will dampen enthusiasm for the stock today, said Andrew Lim, analyst at Matrix, citing large insurance claims, weakness in trading profits and high loan losses in the Middle East.
Reported profits were also dented by a $6.5 billion technical accounting loss on the value of its own debt, more than the $5 billion expected by analysts. Underlying profit before that loss was $13.3 billion, up 56 percent.
BAD DEBTS UP, BUT IMPROVING
Losses on loans that have soured rose 9 percent to $26.5 billion, broadly in line with expectations as an improvement in the United States was offset by losses elsewhere.
Massive losses in the United States in the last three years stem from its purchase of U.S. consumer finance firm Household in 2003 -- a deal the bank now says it regrets -- but impairments there are declining as the loan portfolio is wound down and the impact of rising unemployment has been less than expected.
Asked if U.S. bad debts had peaked, Finance Director Douglas Flint said: That would be a reasonable expectation.
The bank said it expects overall impairment charges to decline in 2010; analysts expect total bad debts will drop to about $20 billion.
The bank said its performance in January was strong and ahead of its expectations.
HSBC said there was understandable public anger in some countries about excessive pay for bankers so soon after the financial crisis.
But bonuses were a legitimate and proper element of reward and remuneration must be market-based, it said. Compensation at GBM as a ratio of revenue was about 25 percent for 2009, lower than almost all investment bank rivals.
The bank said it would pay bonuses to Gulliver and other executives but defer them over three years. CEO Michael Geoghegan said he would give his bonus of up to 4 million pounds to charities.
Geoghegan, a 27-year HSBC veteran including almost four years as CEO, has steered the bank through the crisis and last month moved his base to Hong Kong to be closer to where the bank is focusing investment and expects faster growth.
In 2010 we expect a two-speed economy, with Asia leading the way, Geoghegan said at a press conference in Hong Kong.
We expect Asia to play a bigger role in the growth story and believe developed markets will remain stuck in first gear and at risk of stalling.
British insurer Prudential backed up the trend that economic power is shifting east, on Monday agreeing to buy AIG's Asian life insurance arm for $35.5 billion.
HSBC said it remains in talks to be one of the first overseas companies to list its shares in Shanghai, and will look to raise between $3 billion and $7 billion as part of the listing, sources have said.
It's something we're very interested in doing but the timing is in the hands of the Chinese authorities, Flint said.
(Additional reporting by Clare Jim in Hong Kong; Editing by Hans Peters and David Cowell)