NEWS | Wednesday, 30 July 2008

HSBC’s financial results dismal but “could have been worse”

Charlot Zahra

Economic experts questioned by Business Today about HSBC Bank Malta’s dismal financial results for the first half of this year agreed that the slump was foreseeable, but could have been worse.
On Friday, HSBC Bank Malta plc announced that profit before tax for the six months ended 30 June 2008 of €46.6 million. This result represented a decline of €12.4 million, or 21.1 per cent compared to €59.0 million for the same period last year.
Presenting the results to journalists, HSBC Bank Malta CEO Alan Richards said that the profit figures for the six-month period when compared to the previous financial year had been “disappointing” and that the bank had faced a “challenging period”.
Asked for his reaction about huge slump in the bank’s half-year profits, former Mid-Med Bank Chairman Alfred Mifsud said: “I expected worse.”
Quizzed as to whether the slump was expected in view of the local and international economic situation, Mifsud told Business Today that the drop was “more due to the international situations which depressed market value of investments across the board”.
However, he said that the local situation impinged on the result “through the one off adjustment and the expenses regarding Malta’s euro adoption”.
Asked to compare HSBC Bank Malta’s half-yearly performance with that of its main competitor, Bank of Valletta (BoV), during the same period, Mifsud said: “The performance for the six months to March 2008 for BoV showed a much steeper drop in profit so in this respect HSBC Malta can be considered having performed better.”
On his part veteran economist Karmenu Farrugia concurred that the drop in profits could have been worse: “The 21.1 per cent drop in HSBC’s profits did not come as a surprise at all. In fact, I was expecting it to be in the region of 30 per cent,” Farrugia told Business Today.
“I don’t think that the cause has anything to do with the global situation which, incidentally, could still impact negatively in the course of the next six months and, hopefully not, in 2009. Malta’s economy seems to be more resilient than most of the EU’s economies.
“It was the local environment that caused the profits’ decline, since (a) our entry into the eurozone deprived the banks of easiest of charges which have now benefited their customers – one of the advantages of eurozone membership, and (b) increased competition from several, albeit small, retail banks ensured that previous huge bank charges needed trimming. Malta’s general elections were hardly relevant,” he said.
Asked to compare HSBC’s results with those of its main competitor, Farrugia stated: “BoV is more conservative, as bankers should be, both in determining the profit indications as well as in the dividend distribution policy.”
On his part, former HSBC executive John Consiglio, now a banking lecturer at the University of Malta, told Business Today: “My reaction to these results is simple: ‘Expected! Even if, of course, I didn’t have a crystal ball to tell me the exact extent’
He said it would be “a great mistake” to take the 21.1 per cent drop in the bank’s half-year profits as any indication of what the full year’s profits will be like.
“In every line of economic activity halves of years, or even quarters of years, have their own characteristics and inherent trends over different economic conjunctures.
“So with this year’s market conditions over the first half of this year having been very different, in a negative sense, to 2007, I am, yes, absolutely not surprised that there was this drop in profits,” Consiglio said.
Asked whether the slump came as a result to the current global economic situation, Consiglio said: “The simple answer is ‘Yes’. The late former doyen of Maltese banking, Louis E. Galea, used to say that ‘What is good for the economy is good for banking, and what is good for banking is good for the economy’.
He explained that since the last quarter of 2007, there had been several elements and events – both domestically and internationally –- that damaged the economy.
“The oil price hikes, increasingly evident fall-outs from political (including terrorist) events in many parts of the world (Iran, Middle East, etc), investors showing early signs of reticence towards continuing to play in certain former centres and seeking new ones, climate change issues, illegal immigrants rushes, the local general election, the local adoption of the euro – these and so many other developments, played on economic scenarios (including the Malta one) in an overall negative sense. They were ‘bad’ for the economy, and hence they were bad for banking.”
However, he said that some events, such as the reduction in income from foreign exchange following the euro adoption, were of course easily foreseen long way back.
“When I was Head of Mid-Med Bank’s EU Working Committee at the time of the introduction of the ‘virtual’ Euro in 1999 I insisted with my bank to start steadying itself for drops in foreign exchange income over time from then right up to Malta itself adopting the currency.
“Of course this is the time when, as the old Marines adage goes: ‘When the tough get going’. Even in banking it is always a fascinating exercise for us academics to watch how different bankers, and institutions, react to such conjunctures.
“Some retrench, hoping the tide ebbs and flows in some formalistic saving pattern. Others will sell part of their businesses or take the plunge into new activity in the financial services industry (FSI).
“For instance, Royal Bank of Scotland selling their personal joint venture stake in Tesco, and on the other hand Global Capital here deciding to do now what many had been expecting for quite some time, and add on a banking arm to the group,” Consiglio told Business Today.

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