Monday, financial services provider HSBC Holdings Plc (HBC, HSBA.L) said that first-quarter 2008 profit was much higher than the same period a year ago. The company added that pre-tax profit at all major emerging markets in Asia-Pacific, Middle East and Latin America came in higher than last year.
The company said that first-quarter underlying revenue growth increased from the prior-year quarter even after absorbing US$2.6 billion of additional write-downs in Global Banking and Markets, and excluding US$2.7 billion of fair value gains on its own debt. Compared to the previous-year period, underlying cost growth was modest, HSBC noted.
During the quarter, the company reported good capital ratios, which were broadly in line with those at the end of 2007.
HSBC said that the significant widening in credit spreads, which took place during the quarter, mainly towards the end of March, led to fair value gains of US$2.7 billion on the company's own debt recorded at fair value. Most of these gains reversed in April, as credit spreads on own debt tightened, the company added.
On a geographical basis, Hong Kong's improved results were helped by growth in deposit balances and deposit margins and expansion of the lending business in Commercial Banking. In mainland China, the company reported higher earnings from its strategic investments in Ping An Insurance, Bank of Communications and Industrial Bank.
According to the company, Middle East revenues benefited from HSBC's broad geographical presence and a buoyant regional economy. In India, currency volatility and strong client flows brought in higher foreign exchange revenues in the Global Banking and Markets business.
The company's Latin American business benefited from strong balance sheet growth in Commercial Banking, foreign exchange trading in Global Banking and Markets and improved life and pension revenues.
Commenting on the first-quarter performance, Michael Geoghegan, Group Chief Executive, said, 'I am encouraged by the way we have increased pre-tax profits in every one of the major countries in which we operate in Asia-Pacific, the Middle East and Latin America."
HSBC said that first-quarter pre-tax profits from North American operations dropped sharply compared to the year-ago period, negatively impacted by higher loan impairment charges in the US consumer finance business and further write-downs in Global Banking and Markets. The losses were partly offset by gains in the company's own debt held at fair value.
According to HSBC, loan impairment charges in the US consumer finance business came in line with expectations at US$3.2 billion, compared to US$1.6 billion in the prior-year period and US$4.6 billion in the fourth quarter of 2007, in part reflecting seasonal trends.
Looking ahead, the company said that it seems likely that the deterioration in the US housing market will extend into 2009 and there are increased chances of a recession in 2008. Against this economic backdrop, HSBC continued to experience higher delinquencies across its major lending portfolios, even though these were broadly in line with the expectations at the end of 2007.
HSBC's European businesses reported good performance with the UK retail division increasing pre-tax profit, helped by lower costs, partly due to the non-recurrence of ex-gratia payments dispensed in respect of overdraft charges applied in earlier years.
The company said that the Commercial Banking division recorded higher income, mainly in emerging markets, in spite of reduced earnings from deposit products as a result of lower interest rates in the US.
According to HSBC, pre-tax profit in Global Banking and Markets was lower than in the equivalent quarter in 2007, affected by the US$2.6 billion write-downs relating to the continued credit market disruption.
During the quarter, the company declared a first interim dividend for 2008 of US$0.18, which is payable on July 9.
Going forward, Group Chairman Stephen Green said, "The outlook for the rest of the year remains unusually difficult to foresee in the current environment. We remain alert to the risks but also see opportunity ahead. HSBC will continue to position itself in those markets and businesses where we expect sustainable long-term growth, in line with our strategy."
Separately, HSBC USA Inc., a wholly-owned subsidiary of HSBC Holdings, reported first-quarter net loss of $278 million, compared to an income of $273 million in the previous-year quarter.
The company's total interest income rose to $2.16 billion from $2.12 billion in the same period of last year.
HSBC USA said that net interest income came in at $961 million, higher than $790 million in the comparable prior year. After making provision for credit losses, net interest income declined to $463 million from $585 million a year ago.
Provisions for credit losses were $498 million in the first quarter, an increase of $293 million from the first quarter of 2007, mainly due to growing delinquencies and charge offs within the credit card portfolio and specific write downs on both loans and loan commitments in the commercial loan portfolio.
HBC closed Friday's regular trade at $84.07, down $1.99, on a volume of 1.61 million shares.
HSBA.L is currently trading at 882 pence on the LSE, up 16 pence or 1.85%, on a volume of 25.45 million shares.
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