How HSBC made £13.8bn profits while UK rivals faltered

Feb 27, 2012
Linda Palermo

'Pedestrian' institution's reliance on retail banking and global reach helped it put RBS and Barclays in the shade

HSBC bank today announced profits of £13.8bn for 2011 - far outstripping results announced in recent weeks by rivals such as Barclays (a £5.9bn profit) and RBS (a loss of almost £2bn). 

HSBC's 2011 result, a rise of 15 per cent on 2010, prompted the BBC's business editor Robert Peston to observe on Twitter that: "HSBC generates miles bigger profits and dividends from smaller bonuses than most western rivals." He asked whether this fact was perhaps a challenge to the business model of Barclays and RBS.

HSBC revealed a bonus pot for its investment banking division of £765m. More than 170 people will receive annual awards of more than £1m - an announcement which was greeted with predictable ire by trade unions chafing at public sector job losses and pay freezes.

However, as a proportion of the profits actually made by the bank, bonuses at HSBC were far lower than earned at other banks. Barclays paid out almost twice as much in bonuses (£1.5bn) on half the profits.

So, as per Peston's suggestion, could the other banks take a leaf out of HSBC's book? Well, it's not exactly a fair comparison, as a City insider explained to The Week today.

The venerable Hongkong and Shanghai Banking Corporation, which was founded in the former British colony in 1865, has a far wider global reach than its rivals: 90 per cent of its profits came from outside of the UK.

This means that it is investing and making money in areas of the world such as Brazil and China which are still experiencing strong economic growth - unlike the anaemic eurozone.

The bank also has far larger retail banking divisions - the 'pedestrian' arms which make lower, but more stable, profits from operating as high street banks - as well as strong commercial lending.

The runaway profits made by Barclays and RBS before the 2008 financial crash came from investment banking: the high-risk casino capitalism that resulted in massive losses.

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