Profits fall at HSBC

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HSBC Holdings PLC (LON:HSBA) has reported a surprise drop in first-quarter profit due to higher operating expenses but sweetened the bad news with plans for a new US$2bn (£1.47bn) share buyback.

The bank's pre-tax profit of $4.76 billion for the three months ended March 31 compared to $4.96 billion in the same period a year ago, and was well below the $5.76 billion average of analysts' estimates compiled by the bank.

The bank's profit shrank mainly as a almost 13 percent rise in operating expenses outpaced revenue growth of 5.5 percent. The bank has proposed to pay a first interim dividend of US$0.10 per share. It also made what it called "strategic hires" in its onshore Chinese securities venture, and invested to improve the digital capabilities in all global businesses.

HSBC is Europe's biggest bank, but earns most of its profits from Asia.

"We plan to initiate a share buy-back of up to $2 billion, which is expected to commence shortly", the bank announced.

Still, the bank - the largest foreign bank operating in China - increased its investments on the mainland and in the United Kingdom in retail banking and wealth management. "We intend to deliver positive jaws [the ratio for how income growth exceeds expenses growth] for 2018".

Return on equity for the bank fell compared with the same quarter past year, from 8 per cent to 7.5 per cent.

Nevertheless, the first-quarter numbers still "represent a good start for 2018 for HSBC", Iain Mackay, HSBC's group finance director, told CNBC's Sri Jegarajah after the release of the results.

The results are the first announced since John Flint took over as chief executive from Stuart Gulliver.

He succeeded on the last front, bucking a six-year decline in annual revenues, but was also forced to disclose that HSBC faced at least $1.5 billionn in penalties over alleged tax evasion and money laundering connected to its Swiss private bank - a sign that such troubles will fall to another generation of leaders.

Rising interest rates helped the bank generate more profit from a large base of deposits after years of low rates in the U.S. pushed down margins. "Its peer, Bank of China Hong Kong, has reported quite good quarterly figures end of last month, we expect HSBC to do the same or even a little bit better". "The Hong Kong dollar is now at the weak end of the peg [to the U.S. dollar] so it's possible that we'll have a more sustained rise in Hibor rates soon", Mr Flint said.

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