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Sliding profits by HSBC Holdings reverberate in WNY

HSBC Holdings PLC said pretax profits for the fourth quarter fell by 26 percent amid lower revenues and higher expenses, despite a decrease in losses from bad debts, as the British banking giant moved ahead with its massive global restructuring.

Meanwhile, more than 4,000 employees in Western New York continue to wonder about their own futures, as the region awaits word about what subsidiary HSBC Bank USA will do with its space in Buffalo's tallest building and its sprawling mortgage operation in Depew. No decisions have yet been made.

HSBC on Monday reported $3.2 billion in profits before taxes for the final quarter of 2011, or 13 cents per share, down from $4.4 billion, or 17 cents per share, in the same period a year ago. Underlying, or "core," pretax profit fell by 21 percent, to $3.3 billion.

Total income fell by 5 percent, to $16.7 billion, while net operating income after bad debts fell by 3 percent, to $13.7 billion.

London-based HSBC said net interest income from taking deposits and making loans rose by 1 percent, to $10 billion, while fees fell by 10 percent, to $4.1 billion, and net trading income fell by 30 percent, to $1.6 billion.

Expenses rose by 10 percent, to $11.2 billion, while the bank set aside $3 billion for loan losses, down from $3.4 billion in the final quarter a year ago.

It also recorded a $257 million charge in the fourth quarter in anticipation of its own liability in the national mortgage settlement between the largest mortgage servicers, the federal government and 49 states. HSBC was not among the five lenders that originally signed the agreement, but regulators are now reaching out to other banks.

For the full year, profits for shareholders rose by 28 percent, as HSBC disposed of 19 businesses worldwide -- including its upstate New York branches -- while revenues rose in faster-growing emerging markets. The bank earned $16.8 billion, or 92 cents per share, up from $13.2 billion, or 73 cents per share.

"2011 was a year of major progress for HSBC," said Group CEO Stuart T. Gulliver, who took over a year ago. "I am pleased with our progress, but there is a lot more to do, and we remain focused on delivering our targets."

The bank set aside $12.1 billion for loan losses, down by 14 percent from 2010. That included $2.4 billion in the U.S. consumer finance business.

Last May, HSBC unveiled a massive overhaul of its global businesses in an effort to cut up to $3.5 billion in costs for 2013 by getting out of less profitable countries and business lines, particularly in its retail banking and wealth management division globally.

The goal is to revive the bank's flagging profitability and restore its focus on its core commercial banking business, with a particular target on serving international-oriented customers and facilitating trade.

HSBC announced the sale or closure of 16 businesses last year and three more so far this year, including in countries such as Russia, Chile, Thailand, Poland and Georgia and several in Latin America.

So far, HSBC said it has achieved $900 million in long-term annual cost savings from its restructuring.

As part of the strategy change, HSBC agreed last July to sell 195 branches in upstate New York and southwestern Connecticut to First Niagara Financial Group for $1 billion. The deal includes $15.1 billion in deposits, $2.4 billion in loans and 1,900 employees. It also agreed to sell its U.S. credit card operations to Capital One Financial Corp. Both deals are pending, and the bank continues to otherwise run down the rest of its consumer finance business. That still leaves it with its commercial, private, and corporate and investment banking businesses in the United States -- including in upstate and Western New York -- and its branch network in metro New York City and other major cities.

However, it still leaves uncertainty surrounding the rest of its vast operations in Western New York, where it occupies the majority of the One HSBC Center office tower in downtown Buffalo. That space, with about 2,200 employees in a host of business lines and administrative or support roles, is leased, while it owns the HSBC Atrium building a block away.

It also has about 1,000 employees at its HSBC Mortgage Corp. (USA) business at Walden Avenue and Dick Road.

The bank has said that it plans to remain a major employer in the area. But with the lease on the tower expiring in October 2013, and less need for a large retail mortgage operation that doesn't appear to fit with its new strategy, major questions remain about what it will do.

The bank is still renovating the Atrium to upgrade it and accommodate more employees there, but speculation is now focused on whether it will just expand that building significantly to handle the employees from the tower, or possibly move the employees to the Depew mortgage center, which might otherwise eventually be closed.

"We're still looking at options for the mortgage corporation," said HSBC spokesman Neil Brazil. "With regards to the tower, our intention is to remain there for the time being."