HSBC Defends Rising Costs, Says Investing for Growth

HSBC's Asia Pacific CEO Peter Wong says the company is investing for growth and defended increases in compensation after the bank's 2011 earnings missed expectations on rising costs.

Wong said the company was facing inflationary pressures on wages in Asia, but it had also been building out its investment banking division and that was delivering results.

HSBC announced Monday that it had posted a pretax profit of almost $22 billion for 2011. Its Asian operations contribute more than 60 percent to the bank's annual profits.

"We have to pay those people to produce that revenue. So I think, you're right...we have to pay more for the staff because of the inflationary pressures but this is for a good cause," Wong said.

According to Wong, the company had gone from being ranked in the mid-teens in Hong Kong's IPO league table two years ago, to number two because of its investments in the capital markets division.

"We are number one in debt capital markets, so we've invested a lot and we've also invested a lot in FX margin trading system, so we are producing very good FX revenue," he added.

HSBC [0005.HK  Loading...      ()   ] shares traded lower in Hong Kong on Tuesday after declining 3.7 percent in London on Monday. The lender reported a 10 percent increase in costs for the full year and said wages in emerging markets had increased $1 billion, according to Reuters.

Wong said despite facing inflationary pressures, the bank's return on equity in Asia stood at 21.6 percent last year, up slightly from the previous year. It's also much higher than the overall return on equity target of 12 to 15 percent for the bank.

Wong said the company would boost revenue by cross-selling products and by further cutting costs. HSBC had planned to cut 3,000 jobs in Hong Kong, but Wong said the actual cuts would now be lower.

"Our rough calculation was (for) 3,000, through deep research, looking at the organization very carefully... Hong Kong is very efficient so the number of staff impacted here will be a lot less than 3,000."

General Insurance Unit Sale

HSBC has also been shedding non-core assets in order to cut costs. Wong confirmed the non-life insurance unit was on the block, though he said the bank wasn't under any pressure to do a deal soon and could take between 6 months to a year to complete a transaction.

According to Reuters, France's AXA and U.S. insurer ACE are the final two suitors to buy the $1 billion general insurance business, which HSBC operates in Britain, France, Hong Kong and Singapore.

Asked about potential bidders, Wong declined to comment. But speaking on CNBC, AXA's Deputy CEO, Denis Duverne said that while he wouldn't comment on the specific transaction, the HSBC insurance unit would certainly be a good fit.

"We have a longstanding partnership with HSBC. Over the past 4 years we've developed property and casualty and life insurance businesses in many jurisdictions," he said. "We already have distribution agreements if that were part of the equation; it would be a prolongation of a very active partnership over the years with HSBC."

- Bernard Lo and Martin Soong contributed to this report.

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