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HSBC pledges to maintain dividend as profits fall 29%

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HSBC has reported a 29% fall in profits for the first half of 2016 despite efforts by the banking giant to cut costs.

It posted pre-tax profits of $9.7bn, $3.9bn lower than in the first half of 2015.

The bank said the results were “a reasonable performance in the face of considerable uncertainty”.

Profits were impacted by ongoing weakness in Asian markets and low interest rates globally.

However, shares in the bank were up this morning as the management pledged to sustain its dividend.

“The 7% dividend yield that the shares offer will be attractive to investors, as will the announcement that HSBC will buyback $2.5bn worth of shares after the sale of the Brazilian business,” said Helal Miah, investment research analyst at The Share Centre.

“Cost savings of $2bn were achieved while the investment banking unit performed well. The group also reported good capital metrics which were welcomed by the market.”

In more concerning news for investors, the bank warned there could potentially be a “significant” impact from ongoing investigations into the Panama Papers.

“HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co., a service provider of personal investment companies. HSBC is cooperating with the relevant authorities,” it said in a statement.

“Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said:“Litigation remains a key risk for the banking sector, and HSBC’s report on the legal proceedings facing the bank reads like a barely trimmed down version of War and Peace. This includes a section on the Panama Papers which states HSBC does not know at present what, if anything, the impact on the bank will be, but warns it could be significant.

“The bank is currently rewarding shareholders with dividends and a new share buyback scheme.

“HSBC is facing challenging times as it restructures its business, but for the moment, at least investors are being paid to wait.”

As one of the biggest stocks in the Footsie, HSBC’s performance will have a big impact on the UK stock market, and the returns enjoyed by UK investors in their pensions and ISAs.

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