HSBC profit falls on credit charges as economic outlook deteriorates

A pedestrian wearing a face mask following the outbreak of the coronavirus disease (COVID-19), walks past a branch of HSBC bank in Hong Kong, China February 22, 2022. REUTERS/Lam Yik

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  • First-quarter pretax profit of $4.2 billion vs. market estimate of $3.7 billion
  • More confident of double-digit return on key objective – CFO
  • Credit load of $600 million over release of reserves last year
  • More takeovers unlikely given deteriorating economic outlook
  • Shares fall 3.6% to lowest since mid-March

SINGAPORE/LONDON, April 26 (Reuters) – HSBC’s (HSBA.L) profits fell less than expected in the first quarter, but Europe’s biggest bank has warned further share buybacks are unlikely this year, as rising inflation and economic weakness had undermined its outlook .

Soaring energy prices and supply chain outages, in part due to the war in Ukraine, are hurting banks’ prospects at a time when soaring inflation and potentially rapid rate hikes threaten to sabotage a nascent global economic recovery from the pandemic.

Yet lenders are pinning their hopes on rising interest rates to bolster their profit margins.

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HSBC chief executive Noel Quinn, who has led the London-based bank for two years, is pumping billions into Asia to drive growth, focusing on the wealth management sector, and has also transferred global leaders there .

“Although the economic outlook remains uncertain, the continued rise in interest rates since our annual results has further strengthened our confidence in achieving a double-digit return on average tangible equity in 2023,” said Quinn in the earnings release Tuesday.

HSBC, which has a market value of $130 billion, posted pre-tax profit of $4.17 billion for the first quarter ending March 31, up from $5.78 billion a year earlier.

The results, however, beat the average estimate of $3.72 billion from 16 analysts compiled by HSBC, which derives about two-thirds of its reported pre-tax profit from Asia.

HSBC’s Common Equity Tier 1 capital ratio, a key measure of a bank’s financial strength, fell 170 basis points from the end of 2021 to 14.1%, the steepening of yield curves around the world that negatively affected some of its financial hedges.

In February, HSBC brought forward its key profitability target by a year and more than doubled its annual profit as the bad debts expected from the pandemic failed to materialize.

The lender dealt a blow to shareholders by saying further share buybacks, which it has used in recent years as a way to return excess capital to investors, would be unlikely this year. He blamed volatility in the value of some investments he holds as a hedge against declines in interest income.

The bank will, however, proceed this year with a $1 billion buyout that it previously announced.

Shares of Hong Kong-listed HSBC fell after the earnings release and were down 3.6% at 0620 GMT, their lowest since March 16.

The bank said expected credit losses (ECLs) were $600 million in the first quarter. In the same period last year, it released $400 million in reserves as the outlook improved.

The increase in ECL primarily reflects the direct and broader economic impacts of the Russian-Ukrainian conflict and inflationary pressures on future economic prospects, the bank said.

Earnings were down from the first quarter of last year due to market impacts on wealth earnings and a more normalized level of ECL, Quinn said.

HSBC ranks among Europe’s largest banks along with BNP Paribas (BNPP.PA) with total assets of $2.9 trillion last year.

On Tuesday, Swiss wealth titan UBS (UBSG.S) reported a 17% rise in quarterly net profit to its best level since 2007 on strong trading. Read more

HSBC’s revenue fell 3%, in part due to COVID-19 restrictions in the bank’s biggest market in Hong Kong, as its branches were closed, hurting its sales of health products. ‘investment.

London-listed HSBC shares have gained 12% this year, outperforming many UK banks and the FTSE index (.FTSE).

HSBC’s smaller rival Standard Chartered (STAN.L) reports results on Thursday, followed by Southeast Asian banks such as DBS Group (DBSM.SI) on Friday.

HSBC is also holding its annual shareholders’ meeting in London on Friday.

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Reporting by Anshuman Daga and Lawrence White; Editing by Himani Sarkar and David Clarke

Our standards: The Thomson Reuters Trust Principles.

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