Report on the Middle East Economy

After reviewing last year’s final quarterly report, HSBC, like so many other organizations in the gulf, had a good year. The company reported a 25 percent rise in profits in the Middle East branches alone, attributing the years success to a great deal of spending on the government’s behalf to improve infrastructure, growing real estate values and stable oil prices. The spike on spending on infrastructure, especially in the final quarter, was attributed to preparation for the 2020 World Expo in Dubai, which should continue to help drive the market and economy, and Saudi Arabia’s infrastructure spending.

The specific numbers of profit of HSBC from the Middle East, alone, was $1.6 billion US; that’s up from $1.35 billion the previous year, an impressive declaration in the European bank’s annual report. This steep rise contributed to HSBC’s global banking and market division having the top increase, growing over 50 percent to $869 million in profit.

The bank estimated the economic growth rate in the region had achieved 4 percent, which was boosted by a shift in Saudi Arabia’s fiscal policy and a great deal of the Gulf kingdom spending large amounts to build up infrastructure. All while the extremely volatile political situation in Egypt hampered economic growth in the 2012 to 2013 fiscal year, holding growth at just 2.2 percent and creating a large deficit of around 15 percent of the total GDP.

Stable oil prices hovering between $100 and $111 per barrel also helped stimulate grown in the Gulf. This, along with an economic upturn in the UAE, which had suffered from hits in the real estate market, helped boost the economy in the Gulf region. That, and surprisingly inflation remained down, even with demand rising and less than ideal fiscal policies allowing too much room for shifts.

However, while the profits for HSBC are good, they still didn’t meet the expectations analysts had, as such estimates were $2 billion over what was actually made. This is attributed to failed cost-cutting measures and revenue that shrank from previous estimates.

HSBC has the most success in the Asian markets, and because of this they’re turning their focus to such markets that are proving to yield the most profits for them. This is largely in part due to heightened regulations and fees in other markets, which is why it makes more sense to leave such markets that incur too many operating costs, cutting out profits. At the moment costs are over the 50 percent of revenue estimate, and return equity is not meeting the expected standards.

Dividends for the fourth quarter will reach 19 cents a share, bringing the grand total of dividends this year to 49 cents a share. Over the past year the total share price has dropped 5 percent.

Positive news is that costs drobbed from $42.9 billion to $38.6 billion, which is good progress, but at around 59 percent, it’s a bit high from the original target of low, to mid-50s.

Overall, HSBC and the Gulf region’s economy are in good shape and are expected to continue on the up turn in the next fiscal year.

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