HSBC profits way ahead of forecasts despite 18% fall

HSBC's first-quarter profits fell 14% compared to last year but was better than analyst forecasts, with chief executive Stuart Gulliver expressed confidence that cost-reduction plans now under way will hit their target by the end of next year.

Amid a tough few months for the industry, the banking giant saw its profits before tax dwindle 14% to $6.12bn at the reported level, or 18% to $5.43bn on an adjusted basis.

The consensus forecast was for a statutory PBT of $4.30bn and an adjusted figure of $4.89bn, with the difference attributed by analysts primarily to a $1.15bn fair value gain on own debt as spreads widened during the period.

Adjusted revenue of $13,914m was down a disappointing 4% and impairments were up almost 150%, though Gulliver argued it was a resilient performance amid the tough market conditions that affected the entire sector and versus a very strong comparative period last year.

Lower revenue was mainly in the global banking and markets's FX, equities and credit segments, as well as the life insurance unit of Retail Banking and Wealth Management, partly offset by continued momentum in commercial banking.

Earnings per share of $0.20 were down 23% from the $0.26 in the equivalent period last year.

The board held the quarterly dividend flat at $0.10 per share.

Pointing out increased market share in many key product areas, Gulliver said: "Commercial Banking continued its momentum in spite of the slow-down in global trade, and we increased market share across our strategic trade corridors. We also grew revenue elsewhere in Retail Banking and Wealth Management, particularly from current and savings accounts in Hong Kong and the UK, and personal lending in Asia and Mexico."

Tight cost management and the beginning of the cost-saving programmes cut operating expenses excluding the bank levy by $236m, while loan impairment charges were down by a significant $450m, both relative to the fourth quarter of 2015.

The CET1 ratio and the leverage ratio both remained strong at 11.9% and 5.0% respectively, at their year-end positions, though the former remains below management's target range of 12-13%.

Analysts at Shore Capital pointed out that while fourth-quarter results saw HSBC miss expectations by some distance, the following quarter showed the opposite.

While PBT consensus beat takes the headlines, ShoreCap said the absolute year-on-year trends were disappointing: income down 4%, costs down just 1% and impairments up almost 150%.

"Negative cost-to-income jaws remain a consistent theme of HSBC's results despite management efforts to deliver positive performance on this metric. The reported annualised return on equity of 9.0% remains below the group cost of equity (we estimate 10-12%) and the group target of more than 10%."