HSBC's chief executive has declared that "UK growth needs strong banks" after the lender reported a near quarter-on-quarter surge in profits, amid calls for the Government to raise taxes on bank earnings.
The banking giant recorded a pre-tax profit of 19.5 billion US dollars (£14.5 billion) for the first six months of the year, a 23% increase compared with the same period in the previous year. This figure surpassed the 18.9 billion US dollars (£14.1 billion) that most analysts had forecast.
Bumper reporting season
This result rounds off a strong reporting season for the UK's major high street banks, with Lloyds, Barclays, and NatWest also posting higher year-on-year profits that beat expectations.
The robust earnings have intensified questions about whether the Government could target banks to raise additional revenue. The Trades Union Congress (TUC) highlighted that the four banks' combined first-half profits of £29 billion provided a "mountain of evidence" that banks could afford to pay more tax.
The union is urging the Government to increase the corporation tax surcharge on banks from the current 3% to at least 8%, which it claims would raise £9 billion over four years.
CEO's response
In response to queries about potential tax hikes, HSBC's group chief executive Georges Elhedery said: "This is a matter for the Government, but let me tell you how we're thinking about this.
"First, we're very, very encouraged by the Government's ambition to support and enable growth in the UK, which of course we have a major role to play here.
"Second, for growth to be able to manifest, you need businesses to be confident and invest.
"For businesses to invest, you need them to have access to financing and we, as the banking sector with a strong balance sheet and strong capital position, are the preferred financing mechanism for these businesses.
"So the UK growth requires strong banks."
Financial details
HSBC also announced its intention to launch a new share buyback of up to one billion US dollars (£740 million) as part of its half-year results.
Operating expenses rose in the first half due to increased investment in technology and inflationary pressures. However, this was partly offset by cost-cutting measures under Mr Elhedery's drive to simplify the group, which has already stripped out approximately 1.5 billion US dollars (£1.12 billion) in costs ahead of schedule.
Profit growth was driven by higher net interest income and increased fee income, particularly from wealth management and banking services. This was partly offset by higher expected credit losses totalling 2.4 billion US dollars (£1.79 billion), including a 400 million dollar (£298 million) "fraud-related" exposure to a UK lender and losses linked to geopolitical tensions and higher trade tariffs.
UK resilience
Mr Elhedery praised the UK economy for being "outstandingly resilient throughout all the challenges we've seen lately," while acknowledging the impact of the Iran war "in some of the more fragile economies" globally.
"For the UK, what we're watching is what this means in terms of inflation and the reaction of the Bank of England to inflation," he said.
"But we remain very confident in the resilience of our businesses in the UK.
"We are absolutely standing ready to support any of them to continue investing for their growth ambition and, at this stage, we saw no indication that could tell us otherwise."
