LONDON HSBC Holdings (HSBA.L) is expected to report a jump in quarterly profits on Monday as lower losses from bad debts and a cost-cutting plan outweigh mis-selling charges and the impact of tough economic conditions across the world.
Europe's biggest bank will be the last of Britain's major lenders to report and all are facing intense scrutiny on how far they are streamlining operations, the impact of tougher regulations, and their standards as they get hit with fines and compensation charges for past misconduct.
HSBC (0005.HK) Chief Executive Stuart Gulliver kicked off the bank's restructuring in early 2011, before most rivals, and the benefit is starting to feed through to the bottom line.
The bank should report an underlying profit - after stripping out the impact of disposals and changes in the value of its own debt - in the July-September quarter of between $4.9 billion (3 billion pounds) and $6.6 billion, according to a range of analysts' forecasts, up from $3 billion a year earlier.
Profits will come in at $5.4 billion, according to Credit Suisse analysts.
HSBC, whose origins date back to 1865 as a financier of trade between Europe and Asia, operates in 84 countries and Gulliver is well into his plan for $3.5 billion in cuts, axe unprofitable areas and direct investment to Asia.
He has cut 27,000 jobs and sold or closed 26 businesses, including selling its U.S. credit card arm and half of its U.S. branches.
HSBC's bad debts in the third quarter are predicted to drop to $2.2-2.5 billion from $3.9 billion a year ago. Operating costs should also drop by more than $1 billion.
But Gulliver faces scrutiny on whether he can get costs to below 52 percent of revenue from around 57.5 percent in the last year.
He also aims to lift return on equity, a key measure of profitability, to 12-15 percent in 2013. In H1 2012, it was 10.5 percent.
Other problems also continue to cast a shadow, including the size of a fine it faces for lax anti-money laundering controls in the United States.
On Sunday, Sky News reported that HSBC was about to raise its provision for fines from U.S. authorities by $800 million to $1.5 billion. HSBC declined to comment.
Analysts have said the bank may also have to set aside about 150 million pounds more to cover mis-selling of UK payment protection insurance.
HSBC is also one of more than a dozen banks under scrutiny in the Libor global interest rate-rigging scandal that has put the industry's culture and standards under fire.
Chairman Douglas Flint on Monday will appear before UK MPs investigating standards. He will appear alongside new Barclays (BARC.L) CEO Antony Jenkins and Santander UK (SAN.MC) boss Ana Botin at 4:00 p.m. British time.
HSBC benefits from its strong position in faster growing Asian markets, and analysts estimate its investment bank should deliver profits of more than $2 billion as revenues rise to $4.4-4.7 billion, mirroring the strong fixed income performance shown by rivals.
(Reporting by Steve Slater, additional reporting by Natalie Huet; editing by Jason Neely)