HSBC's pre-tax profit down 29% at $9.7 bn; warns on Panama Papers impact

British banking giant HSBC has registered a 29 per cent fall in its first half 2016 profit and warned of a potentially ''significant'' impact from the Panama Papers investigations.

The bank reported a fall in pre-tax profit to $9.7 billion, with that figure including a £1.2 billion notional loss on its outstanding debt.

Reported profit before tax (PBT) in H1-16 stood at $9.71 billion, down $3.91 billion while adjusted PBT stood at $10.80 billion, down $1.76 billion – a reasonable performance in the face of considerable uncertainty.

The bank's adjusted profit figure, which allows for this accounting measure, shows a 14 per cent drop in profits, to $10.79 billion from $12.55 billion.

Adjusted revenue at $27.87 billion was down 4 per cent compared with a strong H1-15, but the bank reported continued momentum in profit margin.

Adjusted loan impairment charges stood at $2.37 billion, which reflected charges in the oil and gas, and metals and mining sectors, and from Brazil; in line with Q1-16.

HSBC said it capital base continued to be strong with end point capital ratio of 12.1 per cent, up from 11.9 per cent as of 31 December 2015.

The bank also announced a $2.5-billion share buyback, after the sale of its Brazilian business.

Stuart Gulliver, group chief executive, said, ''Following the successful sale of our Brazil business and having received the appropriate regulatory clearances, I am pleased to announce that we will execute a share buy-back of up to $2.5 billion, which should benefit all shareholders and demonstrates the strength and flexibility of our balance sheet.''

The bank said it has received Probabilistic risk assessment approval for the buyback and plans to complete it before the end of the year.

''While economic conditions remain difficult, we are making progress in all of the areas within our control. In the meantime, our balanced business model, strong liquidity and strict cost management make us highly resilient,'' says Gulliver.

However, the bank has warned of possible effects on the bank of the ongoing investigations into the Panama Papers.

''HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co, a service provider of personal investment companies. HSBC is cooperating with the relevant authorities,'' the results state.

''Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.''

HSBC is the latest to report a drop in profits, with its revenues falling faster than it could cut costs, which combined with an increase in bad loans.

The first half of 2016 was characterised by spikes of uncertainty which greatly impacted business and market confidence.

This was reflected in lower volumes of customer activity and higher levels of market volatility. Concern over the sustainable level of economic growth in China was the most significant feature of the first quarter and, as this moderated, uncertainty over the UK referendum on membership of the European Union intensified. Demand for credit for investment slowed as a consequence.

Equity market activity was also markedly lower, particularly in Hong Kong, reflecting both economic uncertainty and weaker market pricing, which was exacerbated by net selling from sovereign funds impacted by lower oil prices. The period ended with exceptional volatility as financial markets reacted to the UK referendum decision to leave the EU, a result that had not been anticipated, HSBC stated.