Rising costs and US settlement crimp HSBC’s first-half profit

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The HSBC bank at their offices in the Canary Wharf financial district in London, Britain. Reuters

HONG KONG/LONDON, (Reuters) – HSBC Holdings Plc (HSBA.L) posted a small increase in first-half pretax profit, as rising expenses from investments in a new growth strategy and a $765 million settlement for alleged mis-selling of US mortgage securities ate into higher revenues.

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Shares in Europe’s biggest bank dipped in London as investors and analysts await clearer signs of progress in the new HSBC management’s strategy of shifting into growth mode after years of shrinking its global empire.

HSBC yesterday reported a pretax profit of $10.7 billion in the six months through June, up 4.6 percent from the year-ago period.

As the bank spent on hiring more frontline staff and expanding digital capabilities, its costs climbed 6 percent to $17.5 billion.

“HSBC is struggling to convince that its current restructuring to pivot the group toward Asia is delivering the hoped for pick-up in growth,” said Steve Clayton, manager of the Hargreaves Lansdown UK Income Shares fund.

HSBC chief executive John Flint, who started in the job in February, set out a three-year plan in June to invest $15-17 billion in areas such as technology and in China.

“We are taking firm steps to deliver the strategy we outlined in June. We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns,” Mr Flint said in a statement.

Pretax profits for the first half from Asia jumped 23 percent to $9.4 billion, representing 88 per cent of the group total.

The bank has not seen any impact yet either on its own performance or that of its customers from rising US-China trade tensions, Mr Flint said, but is concerned about how tit-for-tat tariffs could affect investor confidence.

“I’d be concerned the general rhetoric has a bad impact on investor sentiment and investors go risk-off,” Mr Flint told Reuters.

HSBC’s retail banking and wealth management, and commercial banking divisions performed most strongly in the first half, Mr Flint said, adding both continued to gain from a positive interest rate environment.

The bank’s strong performance in its core Asian markets was marred by tumbling profits elsewhere.

HSBC said it has set aside $765 million to resolve a civil claim by the US Justice Department over allegations the bank missold toxic mortgage-backed securities in the run-up to the 2007-8 financial crisis.

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