Hang Seng Bank’s Profit Falls 29% on Lower Fee Income

Hang Seng Bank Ltd., the largest Hong Kong-based lender by market value, said first-half profit fell 29 percent as a weakening economy hurt fee income servicing wealthy individuals.

Net income declined to HK$6.45 billion ($832 million), or HK$3.37 a share, from HK$9.06 billion or HK$4.74 per share a year earlier, the bank said in a statement today. Profit beat the median HK$6.21 billion estimate among five analysts surveyed by Bloomberg.

Chief Executive Officer Margaret Leung, who in May became the first woman to lead a major Hong Kong bank, is battling falling fee income and narrower loan margins as the economy contracts the most in 11 years. Hang Seng Bank, majority owned by HSBC Holdings Plc, has gained 23 percent this year in Hong Kong trading, trailing the 43 percent advance in the benchmark stock index.

“Revenue progression for Hong Kong banks is going to be a big challenge,” Morgan Stanley analysts Anil Agarwal and Daniel Shum wrote in a July 28 report. They have an “overweight” rating on Hang Seng Bank. “Our view for large Hong Kong banks is that there will likely be severe compression in net interest margins.”

Wealth-management income fell 32 percent to HK$2.18 billion in the period from a year earlier because of “poor investment sentiment,” Leung said in today’s statement.

Net interest income fell 12 percent to HK$7.28 billion and net fee income dropped 36 percent to HK$1.93 billion. The net interest margin, or the difference between earnings on loans and the cost of funds, fell to 2.06 percent from 2.43 percent. Bad- debt provisions rose, the bank said.

Continued Challenges

“The global financial crisis continues to pose challenges for business,” Leung said in the statement. “Although major economies across the world have introduced stimulus measures, it is too soon to tell how successful such measures will be in driving sustainable growth momentum.”

Leung, 56, joined HSBC in 1978 as a management trainee and in 2005 became the first Chinese woman to be appointed a general manager at the bank. She succeeded Raymond Or, who was retiring, as CEO.

Hang Seng Bank, which is incorporated in China, said contribution from its operation in the world’s third-largest economy to the group’s pretax profit rose to 11.7 percent in the first half from 9.4 percent a year earlier.

Former CEO Or said last year he aimed to have 50 outlets in China by the end of 2010. Hang Seng Bank now has 34. The Chinese government’s $585 billion stimulus and record bank lending has helped the economy rebound from an export-led slump, and the nation’s benchmark stock index has rallied 90 percent this year.

Hang Seng’s shares fell 0.9 percent to HK$124.8 at the 4 p.m. close in Hong Kong today, before earnings were announced.

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