The ‘dynamic’ markets help HSBC record £13.8bn profits

Europe’s biggest bank, which makes 90 per cent of its profits outside the UK, said it expects strong growth in the “dynamic” markets of Asia, Latin America and the Middle East to continue, but at a more “moderate” pace.

The bank’s UK pre-tax profits grew 17.2 per cent to £1.5bn, helped by the performance of its Leeds-based internet and phone bank First Direct.

“We remain comfortable with the (outlook in) emerging markets and are confident that GDP growth in emerging markets will be positive and China will have a soft landing,” said chief executive Stuart Gulliver.

Mr Gulliver said HSBC would continue to pay competitively, particularly in emerging markets, as its growth demonstrated the investment was worthwhile.

He was paid £8m last year – including a £2.2m bonus – down from £8.4m in 2010.

HSBC revealed 192 staff were paid over £1m each, including 64 in Britain.

The group grew its mortgage lending in the UK by 12 per cent to £13.2bn, giving it a 9.6 per cent share of the market. This was up from just 2.5 per cent in 2007.

HSBC expects to lend £15bn to UK homeowners this year, with £3bn to first-time buyers.

The bank said this should give it a market share of more than 11 per cent in 2012, based on its projections for the year.

It estimates this will involve working with 150,000 homeowners and more than 27,000 first-time buyers. The bank lent £2.8bn to first-time buyers in 2011, up from £2.6bn in 2010, and says it lends to one in seven new homeowners.

Mark Mullen, who took over as chief executive of First Direct in September, said the bank held customer numbers steady at 1.2m, and plans to grow this total.

The bank, which employs 2,400 in Yorkshire, does not report separate profit figures, but Mr Mullen said it remains “highly profitable”.

“We’re a significant contributor,” he said. “It’s grown phenomenally.” Since 2007, First Direct has trebled its mortgage balances to £18bn, he said.

This means the bank now makes up about a quarter of HSBC’s £70bn UK mortgage book, added Mr Mullen.

Its deposits have grown “modestly”, he said, in the face of “fierce competition”.

The bank also “modestly” reduced costs in 2011. “Cost remains a big challenge,” said Mr Mullen. “We are constantly looking at our resource model. We are reasonably confident that we have resourced the business correctly.”

Loans three or more months in arrears at First Direct stood at just 0.3 per cent of outstanding balances.

HSBC’s writedowns for soured loans in the UK fell almost 35 per cent to £796m from £1.2bn.

Joe Garner, head of UK retail banking, said: “Despite the ongoing challenging economic conditions, during 2011 HSBC used its unique international strength to lend record amounts to both UK businesses and individual customers, and critically our net lending to businesses grew against a backdrop of a shrinking market.

“We remain fully committed to helping the UK economy continue to recover and we will continue to support our customers through the challenges ahead.”

HSBC’s surging profits follow hefty losses from state-backed Lloyds and Royal Bank of Scotland. Barclays reported a slight dip in profits and Santander said UK profits tumbled 40 per cent.

However, HSBC’s profits haul failed to ignite the City and shares dropped four per cent, or 21.4p, to 553.5p.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Even though a couple of the key metrics are flashing amber, on the whole HSBC has again demonstrated its financial firepower.”

Hitting the Merlin targets

HSBC met its Project Merlin targets for lending to businesses in 2011, as loans to commercial customers hit a record high.

It lent £49.4bn to businesses, exceeding its target of £38.8bn. Some £11.9bn went to small and medium-sized enterprises (SMEs), which was slightly higher than its target for a 15 per cent increase on the previous year agreed with the Government under plans to increase access to capital for companies.

Jacques-Emmanuel Blanchet, head of commercial banking at HSBC UK, said: “While economic conditions remain challenging, HSBC has increased both the number of businesses we support and lent record amounts to strong viable businesses.

“We have committed to lend more to viable UK SMEs in 2012 than we did in 2011, and to continue to support customers throughout the economic cycle.”

HSBC said it helped almost 11,000 customers a month start up a business in 2011. Its total number of business customers increased by 6.8 per cent to more than 1.3m.

The Government is reportedly planning not to extend Project Merlin, which was agreed a year ago but has been criticised for doing little to alleviate tight lending conditions for firms.

Chancellor George Osborne is planning to launch a £20bn scheme to ease the supply of credit to cash-starved small businesses, and hopes to launch it in time for his budget on March 21.

Since the 2007/08 financial crisis, many smaller firms have found it hard to borrow to expand. The Bank of England recently said the five banks that signed up to the Merlin agreement failed to meet their target for lending to small and medium-sized businesses, making £74.9bn available, below the £76bn target.