HSBC Cost Cutting Woos Investors: Financial Winners

NEW YORK ( TheStreet) -- HSBC Holdings ( HBC) was the bank stock winner on Monday, with the company's American depositary receipts rising over 2% to close at $56.51.

HSBC early Monday announced a 40% increase in third-quarter profit before tax to $4.53 billion. After-tax profit attributable to shareholders was $3.2 billion, or 16 cents a share, increasing from $2.498 billion, or 13 cents a share, a year earlier.

Operating expenses were down 4% from a year earlier, to $9.572 billion in the third quarter; but HSBC said expenses excluding extraordinary items were up, "reflecting higher investment expenditure, wage inflation and litigation and regulatory-related costs."

HSBC CEO Charles Gulliver said the firm saw "an additional US$0.4bn of sustainable savings over the quarter," bringing total annualized "sustainable savings achieved since the start of 2011 to US$4.5bn."

Like so many other global banks, HSBC said it was cooperating with several regulatory investigations of foreign exchange trading. The company warned that "ongoing regulatory uncertainty" was weighing on results, and said it had made "customer redress" payments of $428 million during the third quarter.

The company's cost-cutting and earnings improvement were well reflected in its year-to-date numbers. Reported profit before tax for the first three quarters of 2013 was $18.601 billion, increasing from $16.218 billion during the first three quarters of 2012. HSBC's cost efficiency ratio -- essentially the number of pennies of overhead expenses for each dollar of revenue -- was 56.6%, improving from 61.2% a year earlier.

Excluding one-time items, Deutsche Bank analyst Jason Napier estimated HSBC's adjusted profit before tax at $5.842 billion for the third quarter, "about 9% higher than our forecast of $5,341m and we think a similar proportion higher than consensus."

In a note to clients on Monday Napier wrote that "As with other banks this quarter, the majority of the beat came from lower loan impairments. " Napier has a neutral rating on HSBC.

Guilty

The biggest Wall Street news on Monday was the announcement by Steven A. Cohen's SAC Capital Advisors that it would plead guilty to federal criminal charges of wire fraud and securities fraud, in a conspiracy prosecutors said went on for more than 10 years.

In an agreement subject to court approval, SAC Capital Advisors agreed to $1.8 billion in fines and restitution, less the $616 million the company previously paid to the Securities and Exchange commission as part of a civil settlement.

The guilty plea had no effect on individual criminal investigations by the Justice Department. Former SAC Capital Advisors portfolio manager Richard Lee pleaded guilty to conspiracy and securities fraud in July. There are pending federal fraud cases against former SAC Capital portfolio managers Matthew Martoma and Michael Steinberg.

SAC Capital in a statement said it had "never encouraged, promoted or tolerated insider trading," and that it was taking "responsibility for the handful of men who pleaded guilty and whose conduct gave rise to SAC's liability."

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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