Investment Banks Kick Arse!

The Hongkong and Shanghai Banking Corporation is actually a British bank of ours, just in case any of you actually thought it belonged to the Chinese. Anyway, they reported earlier today, and I grabbed a quick summary for you all from Bloomberg.

HSBC's First-Half Profit Rose 15% on Investment Banking Gains
HSBC Holdings Plc, Europe's biggest bank by market value, said first-half profit rose 15 percent, buoyed by revenue from corporate lending and investment banking.

Net income rose to $8.73 billion from $7.6 billion in the year-earlier period, the London-based bank said in a Regulatory News Service statement today. Earnings beat the $8.21 billion median estimate of 12 analysts surveyed by Bloomberg News.

Chairman Stephen Green, 57, who took over from John Bond in May, oversaw an expansion of securities trading and investment banking in his three years as chief executive officer. The 141- year-old company hired 1,400 people last year to boost its securities unit, which advised on two of the biggest takeovers in the first half.

"We have reached the point where we should see progress in terms of revenue and profitability'' in investment banking, said Richard Dunbar, an Edinburgh-based fund manager at Scottish Widows Investment Partnership, which oversees $140 billion including HSBC shares." They have put a lot of investment in that business.'' He spoke before earnings were released.

At the consumer lending division, HSBC and rivals including Royal Bank of Scotland Group Plc are facing increasing bad loans amid record individual bankruptcies in Britain.

HSBC shares have gained 3.9 percent this year, giving the company a market value of about 111 billion pounds ($207 billion). By that measure, HSBC is the third-largest financial company after New York-based Citigroup Inc. and Charlotte, North Carolina-based Bank of America Corp.

Investment Bank Expansion
The securities division, which makes most of its money from trading and corporate lending, is benefiting from demand for derivatives from hedge fund managers, as well as rising stock markets and commodity prices. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.

HSBC moved to fourth place among underwriters of international bonds this year from eighth in 2003 and climbed to 13th in advising on global mergers and acquisitions from 17th, according to data compiled by Bloomberg. The investment bank won roles advising German utility E.ON AG on its 29.1 billion-euro ($35 billion) offer for Spain's Endesa SA and working with Mittal Steel Co., the world's largest steelmaker, on its offer for Arcelor SA.

The expansion of the investment banking business, run by Stuart Gulliver, 47, and his former co-head John Studzinski, 50, boosted costs and contributed to a drop in pretax earnings at the unit last year. HSBC in May said cost growth had "peaked" last year at the securities unit. Studzinski is leaving at the end of September to join U.S. buyout firm Blackstone Group LP.

Consumer Growth
HSBC generates less revenue from investment banking and trading than New York-based competitors including Citigroup Inc. HSBC made $5.1 billion from its trading, advisory and underwriting units last year, compared with $16.8 billion at Citigroup, the biggest U.S. bank.

HSBC has spent more than $28 billion in the past four years on banking acquisitions in the U.S., Latin America and China, tapping growth that is faster than in the U.K. Michael Geoghegan, the former U.K. and Latin America head, replaced Green as chief executive officer in May when Bond, 65, retired as chairman after 45 years at the bank.

HSBC's expansion included the $15.5 billion purchase in 2003 of Household International Inc. in the U.S., a lender to people denied credit by other banks. The company agreed on July 21 to buy Grupo Banistmo SA, Panama's largest bank, for $1.77 billion to enter five countries in Latin America, marking the lender's biggest acquisition since the management change.

Geoghegan ran HSBC's U.K. division from January 2004 and has three decades of experience in emerging markets. He headed HSBC's South American unit from 1997 through 2003.

HSBC Beats Forecast

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