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HSBC warns on regulation as earnings fall again

HSBC, Europe's largest bank by assets, posted another fall in pre-tax profit on Monday as the bank continues the second phase of its turnaround plan.

The bank reported a 12 percent fall in pre-tax profit to $12.34 billion for the first half of this year, which missed expectations of an 11 percent fall to $12.5 billion by analysts polled by the lender. This was lower than a figure of $14.1 billion in the same period last year and comes after it posted a 20 percent fall in pre-tax profit in the first three months of the year.

In Monday's statement, HSBC blamed the fall in profits on a series of asset sales last year that had boosted revenues in early 2013 as well as pointing the finger at increased regulation which it said was starting to take its toll. Shares were trading higher by 0.4 percent shortly after the release.

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Alice Tidey | CNBC

Revenues also fell as the group tries to pare down business with a cost cutting program that began in 2011. Chief Executive Stuart Gulliver has previously stated that by 2016, he expects to employ around 240,000 staff compared to the 300,000 who worked at the bank back in 2011.

In the statement accompanying the bank's results Monday, Gulliver said that although regulatory uncertainty persists, the bank's balance sheet remained strong and its continued ability to generate capital supported both growth and its dividend policy.

During a call to analysts following the release of the results, Gulliver said that he was broadly positive on all the regions that HSBC operate in and had upgraded its growth outlook for China. He added that he was very mindful of tensions in the Middle East, with particular reference to the ongoing conflict in Iraq and its implications for its neighboring countries.

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Gulliver also predicted increased revenues at its retail and wealth management units going forward, mentioning that an interest rate hike from central banks would mean its healthy deposit base would start to make more money for the company.

In a lengthy report into the various litigation issues for the bank, HSBC said in Monday's financial release that it had been the subject of regulatory demands for information regarding alleged interest rate and foreign exchange rate manipulation, adding that it was cooperating with those investigations and reviews.

Execution challenges

Meanwhile, Douglas Flint, the chairman of HSBC, has called on the U.K. government to temporarily delay new rules on the "ringfencing" of the country's retail banks from investment banking operations. The new regulations are intended to make the U.K. banking industry less vulnerable to crisis and are designed to separate investment banking units from retail units.

Flint believes that the changes could be costly and waste time which could be better used by allowing banks to build capital buffers to protect against future slumps. In Monday's financial release, he added that the demands now being placed on the human capital and operations of the firm were "unprecedented."

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"The cumulative workload arising from a regulatory reform program that is unfortunately increasingly fragmented, often extra-territorial, still evolving and still adding definition is hugely consumptive of resources that would otherwise be customer facing," he said.

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