HSBC said first quarter net profits climbed 79 per cent as reserves for bad loans shrunk and an improving economic outlook more than a year into the coronavirus pandemic helped offset the hit to revenues from low interest rates.
Net profit before tax was $5.8bn in the three months to March 30, the bank said on Tuesday, significantly higher than the $3.3bn forecast by analysts. Revenue fell 5 per cent to $13bn, slightly above expectations for $12.6bn.
“The economic outlook has improved, although uncertainties remain,” said chief executive Noel Quinn. “We carry good momentum into the second quarter, while maintaining conservative positions on capital, funding, liquidity and credit.”
Reserves for expected credit losses also continued to fall from their peaks in 2020. The bank released $400m of provisions that it made for bad debts racked up during the pandemic. It had set aside $3bn in the first quarter of last year.
A $600m loan loss provision related to the bank’s exposure to Hin Leong, a Singapore oil trader at the centre of an accounting scandal, also weighed on the previous period.
The reversal on credit losses helped turn round performance at its UK bank, which reported first-quarter profits of just over $1bn compared to $369m in the same period last year.
Shares in HSBC rose as much as 2.8 per cent in Hong Kong trading on Tuesday afternoon following the results release.
HSBC is in the middle of a programme to redeploy $100bn of risk-weighted assets from underperforming businesses in Europe and the US into Asia, particularly in wealth and asset management. It has also pledged to cut $5.5bn from annual costs and remove 35,000 jobs as ultra-low interest rates trim billions of dollars a year from revenue.
HSBC said on Tuesday it was continuing negotiations on the sale of its French retail banking division to private equity group Cerberus, although no decision had yet been taken.
While the bank has become a political punching bag in the US-China trade war and the future of Hong Kong, Quinn recently told the Financial Times he would not “flip-flop” on strategy every time there was a flare-up in tensions.
First-quarter profit plunged by half last year after the bank increased reserves for bad loans fivefold as the pandemic forced unprecedented global lockdowns, raising fears about the stability of the financial system.
While the outlook had brightened by the end of 2020, HSBC’s full year pre-tax profit still dropped 45 per cent.