HSBC posts small rise in H1 profit, as expenses, U.S. settlement weigh

By Alun John and Lawrence White

HONG KONG/LONDON (Reuters) - HSBC Holdings Plc posted a small increase in first-half pretax profit, as rising expenses from investments in a new growth strategy and a $765 million provision against sale of U.S. mortgage securities ate into higher revenues.

Europe's biggest bank, which is shifting into growth mode after years of shrinking its global empire and restructuring the business, reported on Monday a pretax profit of $10.7 billion in the six months through June, up 4.6 percent from the year-ago period.

As the bank spent on hiring more frontline staff and expanding digital capabilities, its costs climbed 6 percent to $17.5 billion.

"We are taking firm steps to deliver the strategy we outlined in June. We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns," John Flint, HSBC's group chief executive, said in a statement.

Flint set out in June a three-year plan to invest $15 billion-$17 billion in areas such as technology and in China.

HSBC's retail banking and wealth management, and commercial banking divisions performed most strongly in the first half, Flint said, adding both continued to gain from a positive interest rate environment.

Pretax profits for the period from Asia jumped 23 percent to $9.4 billion, representing 88 per cent of group pretax profits. Flint re-emphasised Asia as one of the bank's strategic targets in his June presentation.

The bank has not seen any impact yet either on its own performance or that of its customers from rising U.S.-China trade tensions, Flint said, but is concerned about how tit-for-tat tariffs could affect investor confidence.

"I'd be concerned the general rhetoric has a bad impact on investor sentiment and investors go risk-off," Flint told Reuters.

The bank's pretax profit of $5.96 billion in the April-June quarter was higher than the $5.79 billion average of analysts' forecasts compiled by the bank.

First-half reported revenues rose 4.2 percent to $27.3 billion.

HSBC shares in Hong Kong partially erased their gains after the results to be up 0.7 percent, in line with the broader market.

U.S. SETBACK

HSBC said it has set aside $765 million to resolve a civil claim by the U.S. Justice Department over allegations the bank missold toxic mortgage-backed securities in the run-up to the 2007-8 financial crisis.

The settlement wiped out almost all of the bank's profits for the first half of the year in North America, where it is trying to turn around a U.S. business that has for years underperformed.

Part of that plan includes a push into the U.S. credit card and personal loans market, where it faces a battle against heavily entrenched domestic competition.

Flint told Reuters it is too soon to see any results from that new strategy.

The bank also announced that it had appointed Jonathan Symonds, formerly chairman of HSBC Bank plc, as its deputy chairman.

(Reporting by Alun John and Lawrence White; Editing by Muralikumar Anantharaman)