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HSBC Holdings Plc, Europe’s largest bank, said first-quarter profit increased four per cent, beating analysts’ estimates, as revenue at its securities unit rose and bad loan provisions dwindled.
Pretax profit rose to $7.1 billion from $6.8 billion a year earlier, HSBC said on Tuesday. That beat the $5.8-billion average estimate of five analysts compiled by Bloomberg. The investment bank reported pretax profit of $3.04 billion, up from $2.9 billion, while provisions for souring loans fell 29 per cent to $570 million in that period.
Chief Executive Officer Stuart Gulliver, 56, has been cutting costs and selling businesses to bolster earnings, while spending billions of dollars to boost internal compliance. He said the bank is still considering moving headquarters abroad as British lawmakers pledge to raise taxes after elections.
"You never know what is the political positioning right now for this bank," said Chirantan Barua, an analyst at Sanford C Bernstein Ltd in London. "I wouldn't go by what management has to say at the moment on domicile" before May 7 elections.
The shares fell two per cent to 633.60 pence at 11:12 am in London after rising as much as 1.4 per cent in earlier trading. They have increased about 4.3 per cent this year. Standard Chartered Plc, the London-based bank which also generates most of its earnings in Asia, has gained 11 per cent.
Revenue rises
Adjusted revenue increased four per cent to $15.4 billion, while operating expenses rose six per cent to $8.5 billion. Profit rose to $5.3 billion from $5.2 billion a year earlier.
"Our business recovered well in the first quarter following a difficult fourth quarter," Gulliver said in the statement. The investment bank "had its usual strong start to the year" and "loan impairment charges were significantly lower" in Europe and North America, he said.
HSBC took a $139 million provision at the global private banking division, without giving details. The lender has been embroiled in scandal over allegations its Swiss private bank helped drug cartels and arms dealers launder money, while advising customers on how to evade tax. HSBC also set aside $137 million for a UK customer redress programme.
Unlike Barclays Plc and Royal Bank of Scotland Group Plc, HSBC didn't need to make further provisions to cover the cost of settling probes into the global rigging of currency markets. Barclays took a £800-million ($1.2 billion) charge in the first quarter and RBS set aside £334 million.
Shareholder pressure
HSBC was hit the hardest by Chancellor of the Exchequer George Osborne's budget earlier this year, with tax increases costing banks £5.3 billion over the next five years.
Gulliver told reporters that latest comments regarding a possible move of headquarters "is not a threat".
"We are under significant pressure from our shareholders who don't understand the extent to which their dividend and the growth of the company is being set back by what they perceive to be is the wrong location," he said, adding that it will take "months" to review the bank's domicile.
With regulators stepping up scrutiny in the wake of the financial crisis and rising fines, British banks have been restructuring businesses and seeking ways to shore up their capital buffers. HSBC, which has assets of $2.7 billion, is among lenders required to split consumer banking from riskier trading businesses by 2019 under a so-called ringfence.
"The UK has rejected the concept of universal banking," Gulliver said. "That's what the ringfence means."
HSBC said it generated $4.6 billion of capital from profit in the first three months of the year, helping it fund an interim dividend and strengthen its common equity Tier 1 capital ratio, a measure of financial strength, to 11.2 percent from 11.1 percent at the end of December. The interim dividend was $0.10 per share.
HSBC's return on equity, a measure of profitability, was 11.5 percent at the end of the first quarter, down from 11.7 percent a year earlier.
