The Hong Kong bank reported a net profit of HK$14.1 billion (US$1.81 billion) for the year to December 2008, a 22.7% decline over the previous 12 months, after deducting loan impairment charges and other credit risk provisions of HK$2,766 million, chief executive Raymond Or Ching-fai told a news conference on Monday. The 2008 write-offs are nearly four times the 2007 level of HK$576 million, and include an undisclosed amount of Washington Mutual debt.
The bank's total dividend payout for the year was unchanged at HK$6.30 a share.
The bank's weak full-year results were also a product of a sharp drop in fee income, due in part to the decline in activity in the bank's wealth management business, said Or. "Personal Financial Services maintained good earnings in the first half of 2008, but recorded a 29% decline in profit before tax to HK$8,410 million," said Or. Or had targetted the wealth management business for expansion when he took over in 2005 - he will step down as chief executive at the next annual general meeting on May 6, to be replaced by Margaret Leung, currently group general manager and co-head of commercial banking for HSBC.
Analysts expect the bank's wealth management business to suffer another large decline and credit quality to show further deterioration in 2009.
Despite the big write-offs, Hang Seng Bank remained well capitalised with a capital adequacy ratio of 12.5%, compared with 11.2% at the end of 2007. The bank's core capital ratio improved to 9.5% from 8.4% at the end of 2007. (The 2008 figures were calculated in accordance with Basel II - foundation internal-ratings-based approach - which came into effect on January 1, 2008, while those at December 31 2007 were calculated using Basel II - standardised approach - according to bank statements.)
Hang Seng's parent, HSBC, which also reported earnings on Monday, revealed it would try to raise £12.5 billion through a rights issue to strengthen its capital base. The bank announced both a 62% drop in profits in 2008 and intention to close its US consumer finance business. The bank's pre-tax profits dropped from $24.2 billion in 2007 to $9.3 billion in 2008. In North America, it made a total loss of $15.5 billion, mainly due to the poor performance of its personal financial services business.