HSBC's net profits fell 82 percent in 2016, damaged by falling profit margins, non-existent interest rates and ever-increasing regulation - and a financial analyst has told Sputnik other UK banks' annual results could be similarly dire, on much the same basis.
In all, profits fell to a mere US$2,48 billion (£1,99bn) down from US$13,52 billion (£10,9bn) a year prior. The bank, Europe's largest, attributed the collapse to a series of one-off charges it had incurred, such as the sale of its Brazil operations. The biggest hit to HSBC's profits stemmed from its private banking operations in Europe — the Swiss-based unit became embroiled in a tax fraud controversy in 2015, resulting in sizeable fines and a forced restructuring of the division.
Nonetheless, the bank deemed its performance "broadly satisfactory" given "volatile financial conditions" — but said a rise in global populism was a concern, as it could lead to a disruption in global trade. HSBC operates in over 70 countries, and its exposure to emerging markets could be deleterious given President Donald Trump's protectionist stance.
"[Brexit and the election of Trump] foreshadowed changes to the established geopolitical and economic relationships that have defined interactions within developed economies and between them and the rest of the world. The uncertainties created by such changes temporarily influenced investment activity and contributed to volatile financial market conditions, and added to concerns about the rise in protectionism," said Chairman Douglas Flint.
HSBC's explanations and reassurances were evidently not believed by traders, however, who pushed the bank's shares to levels unseen since the nadir of the financial crisis in 2009.
Many analysts attributed the bank's poor performance to the after-effects of that meltdown — major banks have been forced to move away from riskier areas of finance, and rock bottom interests the world over have damaged profit margins. The bank has haemorrhaged staff ever since, and plans to cut a further 8,000 jobs in the UK by 2019.
UK May Lose 30,000 Finance Sector Jobs Due to Brexit
While HSBC will maintain its European headquarters in London despite Brexit, planning indicates at least 1,000 roles would leave London for Paris in the lead up to British secession.
Moreover, HSBC has been mired in scandal ever since the financial crisis; in 2016, the bank was fined by the EU Commission for rigging Euribor rates, as well as being embroiled in a lawsuit for failing to apply money laundering controls, to the benefit of drug cartels in Mexico.
More UK banks are scheduled to announce their annual profits before the end of February, and Laith Khalaf, senior analyst at investment firm Hargreaves Lansdown, says the same issues may dent their annual results.
"Litigation still looms large, particularly for RBS which has a plateful of problems to digest, while low interest rates continue to present a challenge for the core business of banking. Lloyds still remains in decent shape, though it's the canary in the coalmine as far as Brexit is concerned, given how thoroughly it is plugged into the grass roots of the UK economy," Mr. Khalaf told Sputnik.
The results fell on the same day as Bank of England Monetary Policy Committee member Gertjan Vlieghe told the House of Commons' Treasury Select Committee that "we are probably not going to forecast the next financial crisis — nor are we going to forecast the next recession."
"I am never confident of any forecast. Models are just not that good," Vlieghe added.
SPUTNIKThe Brexit Effect: HSBC Profits Fall 82%, More Sector Losses to Follow