HSBC's profits jumped in the second quarter as the Anglo-Asian lender was able to cut provisions for bad loans as economic prospects improve around the world, in contrast to the build-up in reserves last year when the Covid-19 pandemic hit. HSBC said pre-tax profit for the April–June quarter came in at US$5.06bn, an almost fivefold increase from the US$1.09bn it booked during the same quarter last year. On an adjusted basis, pre-tax profit was US$5.56bn versus US$2.59 last year. It was the second quarter in a row that HSBC benefited from a reversal in cash set aside to cover losses from the pandemic, after the emerging markets giant recorded a 79% rise in pre-tax profit in the first quarter. During the second quarter, HSBC released US$284m in provisions, compared with the US$3.83bn it set aside in provisions for the same quarter last year. That meant the bank released US$719m in provisions during the first half, compared with a US$6.86bn charge during the same period last year. HSBC's underlying performance was more mixed as reported revenues for the second quarter dipped 4% to US$12.57bn, primarily due to lower interest rates, which squeezed its net interest income, as well as a fairly poor quarter in global banking and markets, its investment bank. Its revenues from fixed income and FX in the second quarter tumbled 44% from a year earlier, broadly in line with rivals, although equities trading revenue surged fivefold. Revenues in capital markets and advisory were down 18% from a year earlier, a weaker performance than most rivals. But the bank said it is making headway towards reviving growth and getting its return on tangible equity back above 10% in the medium term. RoTE came in at 9.4% for Q2, and chief executive Noel Quinn said he was confident of hitting its target, as cost and asset reduction plans are on track and the bank had "good momentum behind our growth and transformation plans". As part of an ongoing shift to Asia, HSBC is selling unwanted businesses in the west, including most of its US and French retail banking operations last quarter, and is shifting investment bank assets and considering purchases in Asia in areas such as wealth management. “We are looking at three or four opportunities at this point in time. They tend to be acquisitions that could accelerate our organic investment plans," Quinn told reporters on a conference call. He said they were unlikely to be in Hong Kong or China, where it is building organically, “so it would probably be acquisitions in the rest of Asia to build out an accelerated capability in product and distribution in wealth, insurance and asset management". HSBC is aiming to strip out US$110bn of risk-weighted assets by 2022, up from a previous reduction target of US$100bn, and has reduced it by US$84.5bn so far. Operating expenses in Q2 dipped 1% from a year ago to US$8.56bn – but, within that, pay for staff is on the rise. Compensation costs in the first half of the year jumped to US$9.61bn, up 13% from the year before. Competition for investment bankers has driven up pay across the industry as banks try to hire and retain staff in busy areas, and firms have bumped up pay for junior staff too. Ewen Stevenson, finance director, said the pay pressure was not just in investment banking and was also evident in Asia and other markets, but he said it was against a bigger jump in profitability. “We think from a shareholder perspective we’ve got that balance right," he said. GBM dip HSBC's investment bank did not benefit from the same surge in deal-making activity that lifted the results of the big five US banks, and GBM's adjusted revenues dropped 23% from a year ago to US$3.59bn. HSBC said adjusted revenues from banking, which comprises global trade and receivables finance, global liquidity and cash management, credit and lending, and capital markets and advisory fell 7% to US$1.66bn. Revenues from capital markets and advisory fell 18% to US$320m
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