Costs hit HSBC profit

Higher costs helped drag HSBC first-quarter profit down 14 percent from a year ago, underlining the task the bank's new boss faces with a shake-up plan this week. It may take three years to get costs back below target, Europe's biggest bank said on Monday as it set aside a $440 million provision in its quarterly earnings report to compensate British customers wrongly sold insurance.
Banks have scrapped a legal fight on the issue, which could leave the industry with a bill of over $10 billion. The provision, along with markedly higher staff costs in investment banking, lifted the ratio of costs to revenue to 60.9 percent from 55 percent in the previous quarter. Underlying costs were up 7 percent from a year ago. Cutting costs will be a key part of a drastic revival plan by Chief Executive Stuart Gulliver on Wednesday, but he warned it will take time to get costs below the 52 percent he wants. "It (will take) two to three years, it's hard to call it earlier than that. This is a large firm, it will take a couple of years," Gulliver told reporters on a conference call.
HSBC shares were down 1.6 percent at 641.5 pence at 1030 GMT, in line with a weaker European banking sector. HSBC reported a pretax profit of $4.9 billion for the first quarter, down from $5.7 billion a year ago, though higher than the $4.4 billion in the fourth quarter. The bank said its performance in April was "satisfactory and in line with expectations".