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LONDON (Alliance News) - HSBC Holdings PLC Wednesday reported a 20% drop in first-quarter pretax profit, driven by a weak performance in Asia, Latin America and in its investment bank that was only partially offset by lower impairment charges and continued cost cutting.
In a statement, HSBC, which is the UK's largest bank by market capitalisation, said first-quarter pretax profit fell to USD6.79 billion, from USD8.43 billion in the corresponding quarter a year earlier. The bank also said it continued to experience "muted" customer activity in April.
The bank, which is predominantly focused on emerging markets, said the drop in pretax profit arose from lower gains being made from disposals and foreign exchange than in the comparative quarter of 2013, as well as lower revenue.
In Asia, pretax profit fell by USD1.75 billion to USD3.76 billion, primarily because last year's figures were inflated by gains in relation to the disposal of Ping An Insurance (Group) Company of China Ltd and the reclassification of and Industrial Bank Co Ltd as a financial investment following its issue of additional share capital to third parties.
But Investec analyst Ian Gordon said Asia's underlying contribution is also "soft" as a result of divestments and unfavourable currency movements.
In Latin America, where there has been pressure on net interest margin as a result of lower yields on customer lending, pretax profit dropped to USD310.0 million, from USD461.0 million.
Revenue, calculated as net operating income before loan impairment charges, fell to USD15.88 billion from USD18.42 billion. Lower revenues in retail banking and wealth management and global banking and markets were partially offset by better results from commercial banking.
Within the investment bank, HSBC said the capital financing teams' revenue decreased because spread and fee compression outweighed volume growth. Revenue in the investment bank's rates, foreign exchange and credit business was also lower because of subdued client activity. One bright note was that the investment bank increased market share in products such as equity and debt capital markets, advisory and lending. It also reported an increase in its equities business as client flows increased.
The overall decline in revenue was partially offset by a drop in operating expenses, which was reduced to USD8.85 billion, from USD9.35 billion.
HSBC's strategy of streamlining its operations means the bank is targeting between USD2.0 billion to USD3.0 billion in sustainable savings over the next three years.
Loan impairment charges and other credit risk provisions fell to USD798.0 million, from USD1.17 billion, primarily on reductions in North America and Europe.
"In the first quarter we maintained control of costs and further demonstrated our capital resilience. Whilst revenue was lower than the previous year's first quarter, which benefited from a number of specific items, we have seen progress in revenue over the trailing quarters. Loan impairment charges fell, reflecting the changes to the portfolio since 2011. Our return on equity was 11.7%," Stuart Gulliver, chief executive, said in a statement.
"Global Banking and Markets had a relatively good performance, and we grew our market share in several product categories. Commercial Banking saw revenue growth but, in our Principal Retail Banking and Wealth Management business, revenues were impacted by changes in incentive plans and product pricing," Gulliver added.
The company has changed its incentive schemes in response to mis-selling scandals. It had expected a resulting hit on revenue, but said it thinks the quality of the business it garners in future will be better with less risk of a repeat of the mis-selling issues.
HSBC increased its provision for payment protection insurance mis-selling costs by another USD83.0 million in the quarter, making it the only one of the UK's FTSE 100 banks to increase the provision this quarter. However, the provision was lower than a year earlier, and contributed to the fall in operating expenses.
HSBC declared a first interim dividend of USD0.10 per share, unchanged from a year before.
HSBC shares were Wednesday quoted at 595.40 pence, down 1.4%.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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