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Trump seeks historic increase of 9 percent in defense spending


´╗┐President Donald Trump is seeking what he called a "historic" increase in military spending of more than nine percent, a huge rise even as the United States has wound down major wars in Iraq and Afghanistan and remains the world's strongest military power. Trump will seek to boost Pentagon spending in the next fiscal year by $54 billion in his first budget proposal and slash the same amount from non-defense spending, including a large reduction in foreign aid, a White House budget official said on Monday. The president does not have the final say on federal spending. His plan to ramp up military spending is part of a budget proposal to Congress, which, while it is controlled by his fellow Republicans, will not necessarily follow his plans."This budget will be a public safety and national security budget," Trump told state governors at the White House. "It will include an historic increase in defense spending to rebuild the depleted military of the United States of America at a time we most need it," he said. Officials familiar with Trump's proposal said the defense budget increase would be financed partly by cuts to the State Department, Environmental Protection Agency and other non-defense programs. Such a hike would be unusual given that the United States is not engaged in a major war, although its special forces and Air Force are active against Islamic State in Iraq and Syria.

An official familiar with the proposal said Trump's request for the Pentagon included more money for shipbuilding, military aircraft and establishing "a more robust presence in key international waterways and chokepoints" such as the Strait of Hormuz and South China Sea. That could put the United States at odds with Iran and China. The United States already has the world's most powerful fighting force and it spends far more than any other country on defense. Defense spending in the most recent fiscal year was $584 billion, according to the Congressional Budget Office, so Trump's planned $54 billion increase would be a rise of 9.2 percent. The next fiscal year starts in October.

In a speech to conservative activists on Friday, Trump promised "one of the greatest military buildups in American history."The White House is sending Trump's budget proposal to federal departments this week as he gears up for budget negotiations with lawmakers that often take months to play out.A second official said the State Department's budget could be cut by as much as 30 percent, which would force a major restructuring of the department and elimination of programs.

The United States spends about $50 billion annually on the State Department and foreign assistance. More than 120 retired U.S. generals and admirals urged Congress on Monday to fully fund U.S. diplomacy and foreign aid, saying that "elevating and strengthening diplomacy and development alongside defense are critical to keeping America safe."Trump also said he would talk about his plans for infrastructure spending in a speech to Congress on Tuesday. "We're going to start spending on infrastructure big," he said. Treasury Secretary Steven Mnuchin, speaking on Fox News on Sunday, said Trump's budget would not seek cuts in federal social programs such as Social Security and Medicare.

Writedowns and tough outlook take their toll on HSBC


´╗┐Annual profit at HSBC Holdings (HSBA. L) slumped 62 percent and fell far short of analysts' estimates as Europe's largest bank took hefty writedowns from restructuring and pointed to brakes on revenue growth. HSBC shares slid more than 6 percent after the company reported revenues fell by a fifth from 2015, underscoring the challenge the bank faces to boost returns amid low global interest rates and slowing economic growth in its core markets of Britain and China. HSBC generated profit before tax of $7.1 billion in 2016 compared to $18.87 billion for the previous year, well below the average analyst estimate of $14.4 billion according to Thomson Reuters data. The bank cut its global bonus pool by 12 percent to $3 billion in recognition of the worse than expected profits. HSBC also announced a new $1 billion share buy-back, as the lender continued to return cash to shareholders from the sale of its Brazilian business. HSBC is the first major UK-listed lender to release its annual results, with Lloyds (LLOY. L), Barclays (BARC. L), RBS (RBS. L) and Standard Chartered (STAN. L) all set to report this week. While HSBC is expected to benefit in the long run once interest rates rise worldwide, the host of one-off charges in its annual results showed the toll its restructuring program is taking on short term profits."The Brazilian disposal highlights the key problem for HSBC -- not only is the quality of the bank's earnings weak, as evidenced by yet another messy set of numbers...but the quantity is lacking as the lender is still trying to shrink itself back to health," said Russ Mould, investment director at online investment manager AJ Bell. The bank's core capital ratio -- a measure of its financial strength was 13.6 percent, against expectations of 13.8 percent, and analysts said the disappointing overall results could drive down forecasts for the stock. The bank signalled a number of factors that would pressure its revenues in 2017, including a $500 million increase in regulatory capital costs, lower interest rates in Britain and adverse foreign exchange rates.

SWISS MISS HSBC fell to a $3.4 billion fourth-quarter loss, against analysts' expectations for a profit, on a $3.2 billion impairment in its private banking business as the lender's accounting valuation of the unit caught up with years of declining performance. HSBC effectively built out its Swiss private bank from its $10 billion purchase of Republic National Bank of New York and Safra Republic Holdings in 1999, banks controlled by Lebanese financier Edmond Safra. But the subsequent emergence of major compliance failures at those operations ate into the bank's bottom line and hurt its reputation, leading HSBC to radically restructure the business.

HSBC CEO Stuart Gulliver said the restructured private bank is now viable as a slimmed-down operation providing advice to wealthy clients referred from the lender's other business lines."What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us," Gulliver told Reuters. The bank also disclosed it was under investigation by Britain's Financial Conduct Authority into its compliance with money laundering regulations. Gulliver told reporters on a conference call that he could not estimate the impact of the investigation but that it reflected the bank finding more "bad actors" among its clients as it improves controls."It's quite normal for a bank of our size and scale with 37 million customers to find among them instances of money laundering that we have self-identified or the regulator has identified," Gulliver said.

BUYBACK The $1 billion share buy-back takes HSBC's announced buy-backs since the second half of 2016 to $3.5 billion following the bank's disposal of its Brazil business last July in a $5.2 billion deal. The buy-back programme has driven the lender's shares to be among the best-performing European bank stocks since the June 23 EU vote, climbing 53 percent in London against a 28 percent increase in the STOXX Europe index of 600 banks . SX7PHSBC's Gulliver said on Tuesday the bank had seen little impact from the referendum outcome on its business but that it was still on track to relocate 1,000 of its 43,000 UK-based workers to Paris once Britain leaves the EU."There will be 1,000 jobs that will have to move, because it would be unlawful for that work to be carried out from the UK, but I don't think this is a problem for the city of London," Gulliver said. Gulliver told reporters on a conference call the bank did not yet have a shortlist of candidates to replace Chairman Douglas Flint, but said the successor will be identified by the end of 2017.