Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Very Quick Look at HSBC's Earnings

LONDON -- Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at HSBC (LSE: HSBA.L  ) (NYSE: HBC  ) to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to 31 December






Profit before unusual items 11,556 12,023 4,088 12,014 14,261
Goodwill impairment 0 (7,251) 0 0 0
Gain on sales of assets and investments 549 1,678 0 0 0
Restructuring charges 0 0 0 0 (209)
Other charges 0 0 309 156 0

Note: All figures in millions of pounds.

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me HSBC reported cumulative profits before exceptional items and tax of 53.9 billion pounds. However, aggregate exceptional costs came to 4.8 billion pounds -- equivalent to a 9% of cumulative "underlying" profits.

The main exceptional charge was a massive goodwill write-off in 2008, relating to its household credit business in the U.S. As it turned out, this sub-prime related write off was a merely a sign of what was to come, with bank profits around the globe plummeting the following year.

Even HSBC, regarded as one of the safest and most conservatively run banks in the world, saw its underlying profits fall by two-thirds in 2009.

This huge hit apart, HSBC has a better record than most when it comes to one-off costs charged against its profits. It made profits on the sale of assets and investments in both 2007 and 2008, and took just one restructuring charge of just over 200 million pounds last year.

Somebody who always studies earnings numbers in detail is Neil Woodford, the U.K.'s leading equity income fund manager. Woodford's portfolios thrashed the FTSE 100 during the 15 years to 2011, and this exclusive Motley Fool report -- which can be downloaded free today -- reviews his favorite blue-chip shares for 2013 and beyond.

Are you looking to profit from this uncertain economy? "10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

Further Motley Fool investment opportunities:

Stuart does not own any share mentioned in this article.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2064084, ~/Articles/ArticleHandler.aspx, 5/27/2016 6:45:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 17,828.29 -23.22 -0.13%
S&P 500 2,090.10 -0.44 -0.02%
NASD 4,901.77 6.88 0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/26/2016 4:02 PM
HSBC $32.61 Down -0.22 -0.67%
HSBC Holdings plc… CAPS Rating: ***