£250m currency windfall for HSBC

THE surprising strength of the pound and euro this year has led to an unexpected windfall for HSBC and may have boosted the bank's interim pre-tax profits by more than £250m.

But there is a risk that shareholders could see their dividend payments cut if sterling continues to climb against the dollar.

The windfall will be revealed next month when HSBC, one of the world's most profitable banks, announces first-half results.

Last year it made pre-tax profits of more than £6.4 billion.

HSBC, headed by Sir John Bond, operates in more than 80 countries. Three years ago it took the decision to calculate its accounts in dollars rather than sterling because the majority of the countries in which it trades have a currency link with their American counterpart. The move was designed to reduce unexpected currency fluctuations.

But a third of its profits are generated in Europe and the bank is now expected to benefit as it converts these back into dollars for its accounting purposes.

The pound climbed almost ten% against the dollar in the first six months, while the euro has enjoyed a similar strong run.

One analyst said: 'Last year HSBC converted its UK profits into dollars at about $1.50 to the pound. The average exchange rate for the first six months of 2003 has been around $1.64.'

Analysts believe these extra cents could have boosted pre-tax interim profits at HSBC by as much as $400 million (£250 million). 'The strength of sterling has had quite a significant effect,' said one analyst.

But the pound's strength could hit the dividend payout. HSBC calculates its dividends in dollar terms and UK-based shareholders then receive their payments in sterling.

Analysts at Citigroup calculate that if the pound rises above $1.75, it could wipe out any increase in the dividend payout.