HSBC has warned that the weight of new banking regulation is putting unprecedented strain on its staff as they race to comply with contradictory rule changes around the world.
"I do not think we have ever had to ask so much of so many," said Glaswegian chairman Douglas Flint yesterday, warning of "growing fatigue within critical functions as well as increased market competition for trained staff".
Mr Flint also noted that within Britain's largest bank, "there's a creeping concern that staff are clearly very focused on the penalties for getting things wrong and are building risk-aversion into the way they think".
Loading article content
"We've got to avoid getting to the state where there's a zero risk tolerance," he added.
The chairman has recently written to Chancellor George Osborne asking him to delay new rules to ringfence UK banks' retail units from their investment banking operations, which will come into force in 2019 and aim to prevent a repeat of the 2008 crash.
Finance director Iain Mackay said HSBC had spent about $800 million (£596 million) on compliance measures over the past 12 months, up $200 million on the prior year.
He believes that this level of spending "is not an inexorable climb northwards" and expects it to stabilise within a year - though the firm will continue to grapple with new regulatory needs around the world.
"There's quite a lot of uncertainty, when you add up the competition review, the wholesale market review and the four or five different stress tests as well as business as usual," said Mr Mackay, telling analysts that the firm now has 6,300 staff working on compliance measures, a rise of about 2,000 in a year even as the bank's overall head count fell.
The comments came as HSBC announced a 12 per cent fall in half-year earnings to $12.3 billion, on revenues four per cent lower than the same six months last year at $31.4 billion.
Operating expenses rose two per cent, reflecting higher spending on risk and compliance as well as a string of one-off expenses.
Impairment charges dropped more than expected, down almost half to $1.8 billion, which HSBC credited to better loan payments in the United States and Europe.
The bank said its revenues were heading in the right direction following three years of asset sales and restructuring as part of chief executive Stuart Gulliver's turnaround plan.
HSBC has also withdrawn from some countries and exited businesses it viewed as risky in the wake of its record $1.9 billion settlement in 2012 to resolve US money laundering charges.
Mr Flint said he expects the firm to grow sufficiently to raise dividends further in the coming years, following yesterday's announcement of an interim payout worth $0.10 per share.
"HSBC has managed to maintain its universal banking model, both in terms of geography and business mix, which should position it well for future growth, particularly in its important Asian markets," said Richard Hunter, head of equities at Hargreaves Lansdown.
"Even so, the increased focus on risk and compliance diverts attention from elsewhere, such as client facing roles."
London-listed shares in HSBC closed up 5.7p at 635p yesterday.
The group has put an extra $234 million into its claim fund for customer redress, which includes payment protection insurance (PPI) mis-selling. It has also set aside $367 million in potential refunds for customers who were not properly told they could make early repayments on their personal loans, as required by the UK Consumer Credit Act.
HSBC said it was upbeat about the overall strength of the UK economy and has predicted a rise in interest rates to come in the final three months of 2014 - a move that experts believe will benefit the bank. "With the prospect of interest rate rises drawing closer, the revenue outlook for HSBC looks more encouraging than it has done for some time," said analysts at Barclays.
The global banking and markets unit has increased its share of available business, HSBC said, despite a quiet six months for global debt and equity sales, along with low volatility that made trading gains more difficult. This unit made pre-tax profits of $5.03 billion, down from $5.72 billion in the same period a year ago.
In Asia, where HSBC makes two-thirds of its earnings, pre-tax profits dropped 14.8 per cent to $7.89 billion.