An HSBC Holdings PLC sign outside of a branch in New York. The banking industry faces "significant headwinds" because of continuing political, regulatory and macroeconomic uncertainty, especially in Europe, CEO Stuart Gulliver said in a statement. Paul Taggart / Bloomberg

LONDON - HSBC Holdings PLC, Europe's largest bank by market value, said the outlook for the global economy is "challenging" and hurting emerging markets as profit at its investment bank shrank by 53 percent.

Pretax profit at its investment bank fell to about $1 billion in the third quarter from a year earlier, London-based HSBC said in a statement on Wednesday. Bad loan provisions increased to $3.89 billion from $3.15 billion, mainly related to its US unit, the bank said.

"The outlook for the global economy is very challenging as problems in developed markets begin to affect growth rates around the world," the company said. "Faster-growing markets clearly possess significant potential for growth, however, and continue to offer attractive business opportunities."

HSBC, the last of the five biggest UK-based banks to report earnings, pledged in August to eliminate 30,000 jobs and retreat from less profitable consumer-banking markets as part of plans to remove as much as $3.5 billion of costs and prepare for tougher capital rules.

HSBC Finance Director Iain Mackay said the Independent Commission on Banking's proposals may cost it $2 billion a year.

When taken in combination with the expected annual charge from the UK bank levy, this would represent an "unacceptable" cost, Mackay said on Wednesday.

HSBC, which earns more than two-thirds of its profit from emerging markets, is in talks to sell its US cards business to Capital One Financial Corp, the bank said in August.

Net income increased 66 percent to $5.22 billion from $3.15 billion a year earlier, the lender said in a statement on Wednesday. That beat the $3.84 billion median estimate of eight analysts surveyed by Bloomberg.

Profit was lifted by a $4.1 billion gain from so-called credit valuation adjustments, an accounting rule that requires banks to book losses when the value of their debt rises and gains when it declines on the theory that a loss, or profit, would be realized were the bank to repurchase that debt.

Net trading income fell to $106 million from $1.39 billion, the company said.

Its cost efficiency ratio for the first nine months of the year also worsened, to 54.6 percent from 54.0 percent last year, while it had reduced head count by 5,000 since the first quarter.

The banking industry faces "significant headwinds" because of continuing political, regulatory and macroeconomic uncertainty, especially in Europe, Chief Executive Officer Stuart Gulliver said in the statement.

"Trading conditions showed some improvement during October, but they remain very difficult and continuing turbulence in global markets may result in further downside risk," the bank said in a regular earnings statement.

Bloomberg News - Reuters

(China Daily 11/10/2011 page17)