HSBC’s profit bruised by higher expenses

HSBC Holdings PLC said higher costs weighed on first-half profit as it embraces ambitious growth plans and steps up investment in technology and its expanding China business.

Chief Executive John Flint said the higher costs were expected after it announced plans in June to invest up to $17 billion in those areas and other parts of its business by 2020. Expenses were 7% higher in the first half of 2018 than a year earlier, helped by a revenue increase of 4% to $27.29 billion.

Mr. Flint, who started as CEO in February after a career in other top HSBC jobs, laid out his strategy in June stating the bank plans to make investments to help improve its returns. The Asia-focused lender is looking to tap China’s Pearl River Delta region for new retail-banking and wealth-management customers, and is investing in a new securities venture in China.

HSBC also has been spending on ways to make banking faster and easier through automation and online applications, as well as its back-end technology. One example Mr. Flint pointed to is a new app in Hong Kong to make fast and easy payments that now has a million users.

Mr. Flint said HSBC is still looking for ways to accelerate growth in insurance and wealth management in Asia, a cornerstone of the strategy laid out in June. The move is one of several aimed at boosting the bank’s return on tangible equity above 11% by 2020, lifting a previous target of 10%. HSBC said the measure hit 9.7% in the first half.

On the deepening trade dispute between the U.S. and China, Mr. Flint said "We’re not seeing any changes in client behavior — yet." The conflict has the potential to disrupt client supply chains across Asia as exporters seek to avoid tariffs. HSBC is one of the world’s largest trade-finance bank, helping exporters across Asia and other parts of the world bring goods to the U.S. and other countries.

"People are clearly concerned by the rhetoric. The scenario that would be difficult is if investors go onto the sidelines and market sentiment collapses," he said.

Net profit for the first half rose to $7.17 billion from $7 billion on lucrative fees from money managing, particularly in Hong Kong, and for the quarter rose to $4.09 billion, up from $3.87 billion in the same three months of 2017.

The bank saw higher deposits from retail customers and strong sales of wealth management products in Hong Kong, which helped push the revenue contribution of the unit rose to nearly 30% of first-half profits, up from 27.5% a year earlier. Banks earn lucrative fees for managing the wealth of wealthy clients who seek to beat low returns on deposits. HSBC’s significant operations in Hong Kong have helped as rich Chinese choose to keep money in the city and outside of the mainland.

Kenan Machado contributed to this article.

Write to Margot Patrick at [email protected]

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