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HSBC Q1 Profit Down On Adverse Credit Spread


British lender HSBC Holdings Plc (HBC,HSBA.L) said Tuesday that a sharply higher adverse credit spread movements dragged its first-quarter profit down. Excluding this, underlying profit climbed with significant revenue performance in Global Banking and Markets and Commercial Banking segments as well as regions of Hong Kong, Rest of Asia-Pacific and Latin America.

Evaluating the strength of underlying profit, the company said it had a good start for the year. Chief Executive Stuart Gulliver said its performance in April has been satisfactory, while markets remain volatile with high levels of debt and regulatory and political uncertainty in developed economies.

"In contrast, the outlook for faster-growing markets is encouraging. We continue to anticipate a soft landing for mainland China and expect India and Brazil to continue to exhibit strong growth. For emerging markets as a whole we are forecasting GDP growth of over 5 percent this year, consistent with the long-term shift in the global economy," he added in a statement.

For its first quarter, HSBC's pre-tax profit decreased 12 percent to $4.32 billion from $4.91 billion a year ago. The latest results included adverse credit spread movements of $2.6 billion on the fair value of its own debt, compared with adverse movements of $0.6 billion last year. Earnings per ordinary share plunged 41 percent to $0.13 also impacted by higher tax charge.

Underlying pre-tax profit, which excluded items, climbed 25 percent year-over-year to $6.78 billion. The company attributed this improvement to increased revenues in Global Banking and Markets and Commercial Banking as well as higher revenues in Retail Banking and Wealth Management from faster-growing regions.

The bank said it continues to reap the benefit of investment in faster-growing markets, with double-digit profit growth in Hong Kong, Rest of Asia-Pacific and in Latin America.

In Europe, the firm slipped to a loss driven by the effect of higher adverse movements in credit spreads and as higher revenues were more than offset by an increase in operating expenses and loan impairment charges.

In the Middle East and North Africa, profit was broadly in line despite higher profits from associate, The Saudi British Bank.

Net interest income edged up 1.8 percentage to $10.09 billion from $9.91 billion last year.

Revenue that comprises of net operating income before loan impairment charges and other credit provisions was $16.2 billion, around $800 million lower than the prior year, reflecting higher adverse credit spread movements. Underlying revenue increased led by growth in all segments.

Loan impairment charges and other credit risk provisions as well as operating expenses were broadly in line last year. Underlying cost efficiency improved to 55.5 percent from 58.7 percent last year, driven by increased revenues.

The bank noted that serious threats to sustained economic growth remain in the North American region, despite the improvement in US economic conditions.

Regarding its ongoing cost saving strategy, the bank said "We continued to make good progress in implementing our strategy … we continued to position the business for growth with increased revenues in Hong Kong, Latin America and Rest of Asia-Pacific against the previous quarter. We also continued to reduce costs."

The company said it will provide an update on the implementation of its strategy at the Investor Day on May 17.

HSBC shares are currently trading at 561.34 pence, up 6.24 pence or 1.12 percent in London.

by RTTNews Staff Writer

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