HSBC Holdings reported a 62 per cent slump in annual pre-tax profit that fell way short of analysts' estimates as the British bank took hefty writedowns from its restructuring, sending its Hong Kong shares down 3.5 per cent.

Europe's biggest bank by assets posted a 2016 profit before tax of $7.1 billion compared to $18.87 billion for the previous year and the average analyst estimate of $14.4 billion according to Thomson Reuters data. It also announced a new $1 billion share buy-back.

Net profit plunges 82% to $2.48 bn

Net profit for 2016 fell 82 per cent from the previous year, calling it a period remembered for its “largely unexpected economic and political events“.

The net profit of USD 2.48 billion compared with USD 13.52 billion recorded in 2015, with group chairman Douglas Flint saying geopolitical changes contributed to “volatile financial market conditions”.

Impairment charge

The 2016 profit reflected a $3.2 billion impairment of goodwill in its global private banking business in Europe and the impact of its sale of operations in Brazil, the bank said in a statement to the stock exchanges on Tuesday.

The private banking impairment charge mainly relates to its acquisition of Safra Republic Holdings in 1999, HSBC said.

HSBC effectively built out its Swiss private bank from its $10 billion purchase of Republic National Bank of New York and Safra Republic Holdings, banks controlled by Lebanese financier Edmond Safra.

But the subsequent emergence of major compliance failures at HSBC's Swiss banking operations went on to eat into the bank's bottomline and hurt its reputation, leading HSBC to radically transform this business.

Not selling private bank biz

“What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us,” Chief Executive Stuart Gulliver told Reuters by phone on Tuesday.

The $1 billion share buy-back takes HSBC's announced buy-backs since the second half of 2016 to $3.5 billion following the bank's disposal of its Brazil unit in July last year in a $5.2 billion deal.

HSBC CFO said the $3.2 billion private banking impairment will have no impact on bank's capital ratio or cash position.

Shares drop

HSBC's stock drop in Tuesday afternoon trading in Hong Kong was the lender's biggest single intra-day share price decline since June 24, which was a reaction to Britain's vote to leave the European Union.

But since then, it has been among the best-performing European bank stocks, climbing 53 percent in London against a 28 percent increase in the STOXX Europe index of 600 banks as the bank benefited from an appreciation of the U.S. dollar and stronger capital levels.

HSBC's Gulliver said on Tuesday the bank had seen little impact from the referendum outcome on its business but that it is still on track to relocate 1,000 of its 43,000 UK-based workers to Paris once Britain leaves the EU.

“There will be 1,000 jobs that will have to move, because it would be unlawful for that work to be carried out from the UK, but I don't think this is a problem for the city of London," Gulliver said.

Succession

HSBC Chairman Douglas Flint said in the bank's annual report that it is still on course to name his successor by the end of the year, but did not offer any update on progress in finding suitable candidates.

HSBC rival Standard Chartered last July named former deputy governor of the Bank of Spain Jose Vinals as its new chairman, ending a 16-month search that underscored the challenge of finding executives both palatable to regulators and capable of overseeing complex big banks.

Flint and his chief executive Gulliver have toiled since taking over HSBC in 2010 to shrink it, exiting more than 80 businesses and shedding over 43,000 jobs as the post-2008 crisis environment proved harsh for global mega-banks.

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