London and Hong Kong-listed HSBC said today that its global private banking arm logged a pre-tax profit of $1.054 billion in 2010, down slightly from 2009’s figure of $1.108 billion.

London and Hong Kong-listed HSBC said today that its global private banking arm logged a pre-tax profit of $1.054 billion in 2010, down slightly from 2009’s figure of $1.108 billion. Meanwhile, the parent group’s profits surged from a year before.

The private bank made net operating income in 2010 of $3.1 billion, up from $2.984 billion a year ago. Net interest income slipped $1.345 billion from $1.474 billion, HSBC said in a statement.

The drop in pre-tax profit was mainly caused by lower net interest income against a backdrop of ultra-low interest rates, explained stockbroking firm Charles Stanley.

For the group as a whole, its profit before tax, on a reported basis, rose by nearly $12 billion in 2010 to $19 billion. On an underlying basis, profits increased by 36 per cent from $13.5 billion to $18.4 billion. Although the headline profit figure showed a dramatic improvement, the rise in a cost-income ratio to 55.2 per cent from 52.0 per cent was a negative, and disliked by investors, the brokerage said.

At the end of 2010, HSBC had a Core Tier 1 capital ratio of 10.5 per cent, compared with 9.4 per cent.

Over a year ago, HSBC famously signalled the importance of Asia as a revenue driver and focus of operations by moving its then chief executive, Mike Geoghegan, to Hong Kong. Today, the firm's current group CEO, Stuart Gulliver, reiterated the importance of Asia for its markets but also highlighted London and the need to keep the UK capital as a financially competitive centre.

“As group chief executive, it is right that, in managing the business and developing group strategy, my principal office should be in Hong Kong – a global financial hub of growing importance at the centre of HSBC’s strategically most important region. However, the company is headquartered in London and we hope to remain there,” Gulliver said.

The bank also issued a detailed statement about lawsuits brought against it for allegedly aiding and abetting the $65 billion Ponzi scheme fraud of Bernard Madoff, now serving a 150-year jail term in the US after pleading guilty to the crimes. HSBC said it vigorously contests these suits.

A number of non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, HSBC said the purported aggregate value of these funds was $8.4 billion, an amount that includes fictitious profits reported by Madoff.

HSBC said it estimates that the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time that HSBC serviced the funds totalled approximately $4.3 billion.

Plaintiffs (including funds, fund investors, and the Madoff Securities trustee) have launched Madoff-related proceedings against numerous defendants in a multitude of jurisdictions. Various HSBC companies have been named as defendants in suits in the US, Ireland, Luxembourg, and other jurisdictions.

These lawsuits claim that the HSBC defendants knew or should have known of Madoff’s fraud and breached various duties to the funds and fund investors. In December 2010, the Madoff Securities trustee commenced suits against various HSBC companies in the US bankruptcy court and in the English High Court.

The US action (which also names certain funds, investment managers, and other entities and individuals) seeks $9 billion in damages and additional recoveries from HSBC and the various co-defendants.

“The cases where HSBC companies are named as a defendant are at an early stage. For these reasons, among others, it is not practicable at this time for HSBC to estimate reliably the aggregate liabilities, or ranges of liabilities, that might arise as a result of all such claims but they could be significant. In any event, HSBC considers that it has good defences to these claims and will continue to defend them vigorously,” the bank added.