HSBC has beaten analysts’ expectations for its first-quarter results as strong trading conditions, rising interest rates and a weaker dollar lifted earnings, bringing welcome relief from its heavy miss at the end of last year.
Pre-tax profits, adjusted for one-offs and currency moves, reached $5.9bn, surpassing consensus forecasts of $5.3bn. Shares opened up 3.4 per cent in London trading, hitting 668.30p.
Europe’s biggest bank by assets, which has struggled to reverse a slide in revenues and to keep a lid on costs, benefited from a fall in provisions for bad debts, helped by a positive $100m write-back of earlier provisions mainly on oil and gas loans.
This offset a rise in restructuring costs and a $210m provision for compensating UK customers for mis-selling payment protection insurance.
HSBC’s London shares opened up 2.9 per cent at 663.9p, while the bank’s Hong Kong-listed shares added 3.1 per cent to HK$66.45.
While reported revenues of $13bn for the quarter were down 13 per cent compared with the same period a year ago, the bank attributed the fall to last summer’s sale of its Brazilian business, whose operating numbers were included in the early 2016 reports.
Reported pre-tax profits, at $5bn, were down 19 per cent year-on-year, the result of the missing Brazilian income as well as a change in the way the bank accounts for the fair value of its own debt.
Compared with the final quarter of last year, return on equity dipped from 9 per cent to 8 per cent, while earnings per share of 16 cents beat expectations of 13 cents.
“This is a good set of results. The increase in adjusted profit was driven by strong performances in three of our four global businesses,” said Stuart Gulliver, chief executive.
Adjusted revenues from retail banking — HSBC’s single largest unit — rose 15 per cent to $5bn from the first quarter of 2016, while those from its global banking and markets division rose 10 per cent to $3.9bn.
Mirroring a surge in trading income from the big US investment banks, HSBC reported a 29 per cent rise in global markets revenue in the quarter. It said strong growth in credit, rates and equities trading offset a drop in foreign exchange income.
Hong Kong, the bank’s biggest profit-generating centre, reported higher deposits and savings balances. The bank was helped too by the income from wider interest rate spreads.
James Chappell, banking analyst at Berenberg, said: “Overall, a solid set of results with the only disappointment no further buybacks. However, valuation already reflects this.”
HSBC has missed a string of financial targets and is in the process of a hefty restructuring after its return on equity fell to less than 1 per cent last year.
First-quarter costs exceeded analysts’ forecasts, falling 4 per cent from the end of last year against expectations of a 6 per cent drop, according to Bernstein analysts. The bank, however, maintained its full-year guidance.
HSBC has sought to offset the earlier disappointment among investors with its performance last year by buying back $3.5bn of shares, and analysts are hoping it will announce plans for more this year.
A jump in the bank’s common equity tier one ratio — a vital benchmark of balance sheet strength — from 13.6 per cent to 14.3 per cent takes HSBC well above its 12-13 per cent target and will fuel investor hopes of more share buybacks.
Iain Mackay, finance director, refused to be drawn on this, saying: “We will assess with our regulators our ability to do more buybacks as the year progresses.”
In spite of the buybacks, the bank is one of the worst-performing among its European peers this year.
In March the bank signalled progress on its succession plan, announcing Mark Tucker, chief executive of AIA, the Asian insurer, as its new chairman. The appointment was the first time the bank has gone outside its own ranks to fill the position in more than 150 years of its existence.
One of Mr Tucker’s top priorities will be to find a replacement for Mr Gulliver, who has told the HSBC board he will quit as chief executive next year.