Hang Seng Bank Profit +51%

HSBC unit Hang Seng Bank 2007 net profit up 51.5 pct, beats forecasts

HSBC unit Hang Seng Bank reported 51.5 pct rise in 2007 net profit, driven by strong growth in its wealth management and commercial banking businesses and one-off gains from a listing of China's Industrial Bank on the mainland early last year.

The bank announced that net profit rose to 18.242 bln hkd last year from 12.038 bln achieved in 2006. The earnings surpassed analysts' forecasts, which were for a profit of 15.3-16.7 bln hkd.

""The growth reflects an impressive performance by our wealth management business...further development of commercial banking and increased contribution from our mainland associate, Industrial Bank,"" Hang Seng chairman Raymond Chien said in a statement.

For the period, the bank's net interest income rose 25.9 pct year-on-year to 14.719 bln hkd, with the net interest margin improving by 21 basis points to 2.23 pct, benefiting from improved deposit spreads, the treasury's balance sheet management portfolio yields and contributions from net free funds.

Net fees and commissions jumped 96.9 pct to 6.886 bln hkd from 3.497 bln, driven by strong business growth and favorable investment market sentiment.

The bank noted that fees income from stockbroking and related services rose by 146.6 pct with the buoyant stock market driving increased transaction activity and a 19.7 pct growth in its customer base.

Including the bank's share of profit from Industrial Bank, its mainland business contributed 6.5 pct of its total profit before tax, compared with 6. 1 pct in 2006.

The bank noted that it also made a gain of 1.47 bln hkd on the dilution of an investment in a 12.78-pct owned associate, with the listing of Industrial Bank in China.

The bank set a target earlier that its mainland operation to account for at least 10 pct of earnings by 2010.

Chief executive Raymond Or told a press briefing after Hang Seng's results announcement that there was nothing irregular in the bank's total dividend payout for the year.

""The increase in our dividend payout was because the bank recorded strong earnings growth last year and it has no relation at all to HSBC's subprime exposure,"" he said.

He made the comment in response to a question on whether or not Hang Seng deliberately raised significantly its dividend payout last year to address possible worries that investors might have on parent HSBS's subprime exposure.

Hang Seng Bank declared a fourth interim dividend of 3.0 hkd per share, up from 1.9 hkd a year earlier.

The total dividend for 2007 amounted to 6.3 hkd.

The bank kept its 2004-06 fourth interim dividend unchanged at 1.9 hkd.

Or also said that Hang Seng will continue to expand its China business by opening more branches in major cities, offering yuan services and bolstering brand-building initiatives.

He said the group's total investments in the mainland have risen to 7.3 bln yuan following the group's purchase of a 20 pct stake in the mainland's Yantai City Commercial Bank in January this year for a total consideration of 800 mln yuan.

""We will capitalize on the synergies created (by) our strategic partnership with Yantai to good effect,"" he said.

Or also said that the loan-to-savings ratio of the group's China business currently stands at 250 pct, but Hang Seng plans to reduce this to the industry benchmark of 75 pct in five years.

He said the total operating income of the group's China business rose 69. 4 pct year-on-year.

But pre-tax profit fell 77 pct due to the costs of setting up branches in the mainland and foreign exchange losses.

He did not provide absolute figures.

Despite a sharp fall in pre-tax profit, Hang Seng expects to see better growth prospects in the next two to three years, he said.

Or said wealth management, commercial banking and China business will serve as growth drivers this year for the whole group.

""We expect to see double-digit growth in earnings in four years in our private banking business,"" he said.

""Looking ahead, economic growth in our market of operations will be influenced by the wider impact of an economic slowdown in the US, as well as increasing inflation pressures. However, domestic demand is now a major driver of growth in Hong Kong and on the mainland,"" he said.

""Moreover, exports should remain solid on the back of stable demand from Europe and Asia. Against this backdrop, we remain cautiously optimistic for the year ahead,"" he said.

Hang Seng Bank  attempts to hold above the 50-day moving average where it is now at $149.80. By technical analysis, this share takes a technical correction after it has hit a record high at $170.00. If the counter manages to hold above the 50-day supporting line, it signals to stay on a major upward trend. Whenever it finishes the recent consolidation, it is likely to trace an upward trend towards $170.00 again. Thanks to the sound fundamentals on the local banks, it will probably stem up the share price.

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