HSBC Profits Seen Up 10 Percent As Cost Cuts Pay Off

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HSBC Holdings (HSBA.L) is expected to report a 10 percent rise in quarterly profit on Monday as Europe's biggest bank benefits from cost cuts and the absence of a big provision to cover a fine last year.

File photo of HSBC logos displayed inside an office tower in Hong Kong

HSBC Holdings (HSBA.L) is expected to report a 10 percent rise in quarterly profit on Monday as Europe's biggest bank benefits from cost cuts and the absence of a big provision to cover a fine last year.

The rise is unlikely to put to rest concerns about HSBC's growth prospects as tougher regulations squeeze profits, investment banking income drops and the threat remains of further litigation over the bank's past conduct.

HSBC is expected to report a pretax profit of $5.5 billion for the three months to the end of September, according to the average of 13 analysts polled by the bank. That compares to $5 billion a year ago, excluding losses from changes in the value of the bank's own debt.

Operating costs are forecast to fall $1.5 billion from a year ago to $8.8 billion, as Chief Executive Stuart Gulliver's plan to streamline HSBC and improve profitability pays off. In the three years of a revival plan, he has sold or exited 54 businesses and cut $4.1 billion in annual costs.

Gulliver has also pledged to instill a more responsible culture and reduce risk across his bank after it was fined a record $1.9 billion last year for compliance failings in Mexico.

HSBC set aside $800 million in the third quarter of last year to cover the fine, which showed serious flaws in its risk management and left the bank under pressure to improve compliance and reduce its complexity.

The industry remains under close scrutiny from regulators.

HSBC rivals including Barclays (BARC.L), Deutsche Bank (DBKGn.DE) and JPMorgan (JPM.N) said last week they were co-operating with authorities investigating possible manipulation of currency markets by a host of major banks.

HSBC said in August it might have to pay $1.6 billion to settle with a U.S. regulator over allegations it mis-sold mortgage-backed bonds during the housing bubble.

HSBC's profits are expected to rise to nearly $26 billion this year from $21 billion in 2012, according to the average of analysts polled by the company. It made $14.1 billion in the first half of the year, up 10 percent from a year before.

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