HSBC’s gamble on the controversial acquisition of Household International, the US bank fined $500 million for predatory lending, paid off yesterday as profits surged by a fifth and shares hit a 12-month high.
The bank told investors that the annual benefits of acquiring Household International will be more than double the level previously expected at $1.2 billion (£750 million). The benefits take in cost savings and additional revenues.
Pre-tax profits surged 21 per cent to $6.11 billion for the six months to June 30. Household International contributed $651 million to profits, despite a 30 per cent rise in its bad debt provisions. HSBC took $1.5 billion of provisions at Household International, bringing the total to $2.3 billion, against $715 million last time.
The bank’s shares rose 13p to close at 777½p after hitting an intra-day high of 793½p.
The bank said that the additional $700 million in annual gains would come from cheaper funding for Household’s lending products and an extra $200 million of integration benefits, which will include Household selling products outside the US.
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Stephen Green, HSBC’s group chief executive, said that the bank’s plans for the integration of Household were ahead of expectations. He also pointed out that the US bank was committed to retraining its staff after last year’s fine for predatory lending.
Mr Green said: “There is a significant increase in the amount of money that the group has committed to retraining.” Household is to spend $150 million this year on staff training, compared with $75 million a year ago. The bank also said that it expected a modest improvement in the US economy, which would help to curb the rise in bad debts at the US group.
Mr Green, who is set to succeed Sir John Bond as chairman, dismissed fears about rising levels of consumer borrowing in the UK. He said: “We do not expect these growth levels to continue.”
Profits, excluding Household and the purchase of GF Bital, the Mexican bank, were 4.5 per cent higher than last time. The bank also raised the first interim dividend by 17 per cent to 24 cents.
Stuart Fowler, a fund manager at Axa Investment Managers, said: “The striking thing is the rise in the dividend. A company of this scale putting up the dividend by 17 per cent is a major event.”