Source Credit : Portfolio Prints
Europe’s largest lender, HSBC, reported first-quarter pre-tax profit of $9.4 billion on Tuesday, falling short of analysts’ expectations as higher credit losses and impairment charges weighed on performance.
Despite the earnings miss, revenue rose 6% year-on-year, beating estimates on the back of stronger wealth management fees and diversified income streams. However, pre-tax profit still declined 1% from a year earlier, reflecting mounting cost pressures.
Investor sentiment turned negative following the results. Shares in Hong Kong dropped 4.6%, while the bank’s London-listed stock fell 5.2% shortly after the market opened.
A key drag on performance was a sharp rise in expected credit losses, which came in at $1.3 billion—$400 million higher than the same period last year and roughly 9% above consensus forecasts, according to Citi.
HSBC attributed the increase in provisions to exposure to a financial sponsor in the U.K., as well as broader macroeconomic uncertainty linked to ongoing conflict in the Middle East. The bank warned that deteriorating global conditions are beginning to feed into its risk outlook.
“I feel quite comfortable that at a $1.3 billion charge, based on what we know today and the forward outlook of various downside scenarios, we are well provided for,” Chief Financial Officer Pam Kaur said in an interview with CNBC.
On the strategic front, HSBC said it remains on track to deliver $1.5 billion in annualized cost savings by June 2026. The bank also expects to generate $500 million in pre-tax synergies by 2028 following the privatization of Hang Seng Bank, strengthening its position in Hong Kong.
The privatization, completed on January 26, led to Hang Seng Bank’s delisting from the Hong Kong Stock Exchange, consolidating HSBC’s control over its regional operations.
Core banking income remained resilient, with net interest income rising 8% year-on-year to $8.9 billion. However, operating expenses increased at the same pace, driven by inflationary pressures, currency fluctuations, higher investment spending, and performance-related compensation.
Looking ahead, HSBC flagged significant downside risks tied to the Middle East conflict, including elevated oil prices, persistent inflation, and a potential slowdown in global growth. In a worst-case scenario, the bank warned of a “mid-to-high single-digit percentage” hit to pre-tax profit.
The lender maintained its return on tangible equity (RoTE) target of 17%, though it cautioned that adverse geopolitical developments could push returns below that level in 2026. For the first quarter, RoTE—excluding notable items—stood at a robust 18.7%.
Analysts at Citigroup downplayed concerns over profitability, noting that HSBC remains comfortably ahead of its medium-term return targets despite near-term headwinds.
The board also approved its first interim dividend for 2026, declaring a payout of 10 cents per share, signaling continued confidence in the bank’s capital position.
