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HSBC cost cuts set to lift profits as CEO faces growth challenge

The logo of HSBC bank is seen at its office in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren
The logo of HSBC bank is seen at its office in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

By Steve Slater

LONDON (Reuters) - HSBC's profits are expected to rise by almost a fifth to $24 billion for 2013 as it benefits from a cost-cutting drive that spans managing its documents more efficiently to telling staff to use business class air travel less.

Chief Executive Stuart Gulliver has sold or closed 60 businesses, axed 40,000 jobs and taken a knife to costs since taking over three years ago, and last year's operating costs are expected to tumble $5 billion from 2012 and lift profits.

Analysts expect Gulliver to keep a tight rein on costs and said his bigger challenge is to increase revenue at Europe's biggest bank by market value.

Economic growth in Asia has slowed and HSBC has lost income after offloading its U.S. credit cards business and half of its U.S. branch network, and selling its stake in Chinese insurer Ping An, and Gulliver needs to show how to replace that.

He said in November economic growth in Hong Kong and Britain should underpin its two core markets this year and he was confident China and the rest of Asia-Pacific will grow.

Analysts said any improvement in revenue prospects would go down well with prospective investors, especially many institutions in Britain who will soon get a flood of cash from the $84 billion sale of mobile phone firm Vodafone's stake in Verizon Wireless.

"Some evidence of revenue momentum and capital accretion may be met with a surprisingly robust increase in investor interest, particularly given the imminent receipt of substantial volumes of cash by Vodafone shareholders," said Deutsche Bank analyst Jason Napier.

HSBC's revenues last year are expected to be down about $2 billion from 2012 to $66.4 billion, reflecting the lost income from disposed businesses, weakness in some emerging market currencies, and lower investment banking revenue. Revenues are currently forecast to grow by less than 1 percent this year.

HSBC, which has long been one of the world's best capitalized banks, has also come under pressure to show it can build capital to meet tougher global rules and UK regulatory demands, which analysts said had seen it take a cautious approach to dividends to preserve cash.

HSBC's 2013 pretax profit is expected to come in at $24.3 billion, according to the average of 27 analysts polled by Thomson Reuters, which would be up 18 percent from 2012 and mean a $5.7 billion profit in the fourth quarter.

Its investment bank's income is expected to dip in the fourth quarter due to weakness in fixed-income revenues, after its rivals reported a 12 percent drop in fixed-income revenues during the period on average. HSBC may have gained some market share due to its strength in foreign exchange, analysts said.

Its operating costs are expected to fall to $37.9 billion in 2013 from $42.9 billion, largely thanks to the cost cuts, lower losses from bad loans, lower litigation and mis-selling charges and reduced restructuring costs compared with 2012.

Gulliver had cut annualized costs by $4.5 billion by the end of September, although much of that has been absorbed by higher compliance costs.

HSBC, like many of its rivals, continues to face more costs to tidy up past mis-selling. It is also one of several banks that has said it is cooperating with authorities investigating foreign exchange trading and has set aside more money for other potential settlements.

(Editing by Pravin Char)

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