HSBC Says Quarterly Profit Falls 20% as April Outlook Muted

May 07, 2014 9:35 pm ET

(Updates with Hong Kong shares in sixth paragraph.)

May 8 (Bloomberg) -- HSBC Holdings Plc, Europe’s largest bank, said first-quarter profit fell 20 percent, meeting analyst estimates, as gains from asset sales dwindled and investment- banking revenue slipped.

Pretax profit declined to $6.79 billion from $8.43 billion in the same period a year earlier, London-based HSBC said in a statement yesterday. That met the $6.77 billion average estimate of six analysts surveyed by Bloomberg. Operating income before provisions slipped to $15.9 billion from $18.4 billion.

The lender, which derives the bulk of its profit from Asia, has closed or sold more than 60 businesses since 2011 to focus on its most profitable markets and is also seeking to cut costs. One-time gains from asset sales in 2013 weren’t repeated in the quarter, while operating costs dropped 2 percent to $8.8 billion, HSBC said.

HSBC’s income “miss was offset by strong cost and risk performance,” Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. who rates the lender outperform, wrote in a note to clients yesterday. The global banking and markets unit, which houses HSBC’s investment-banking activities “performed much better than peers.”

Pretax profit at the division dropped 20 percent to $2.87 billion from the year-earlier period as income from its currencies and rates operations declined. Barclays Plc, Britain’s second-biggest lender, said May 6 that pretax profit at its investment bank tumbled 49 percent, hurt by dwindling income from fixed income, currencies and commodities.

‘Muted’ Outlook

HSBC shares fell 1.3 percent yesterday in London to 596.5 pence, the lowest level since March 20. The stock slumped 10 percent this year, the second-worst performance among U.K. bank stocks after Barclays. The bank’s shares in Hong Kong rose 0.1 percent to HK$78.50 as of 9:31 a.m. local time.

“We continued to experience muted customer activity in April,” HSBC said in the statement.

HSBC’s return on equity, a measure of profitability, declined to 11.7 percent from 14.9 percent a year earlier, the bank said. That compares with the company’s goal of 12 percent to 15 percent. Costs as a proportion of revenue rose to 55.7 percent from 50.8 percent, in line with Chief Executive Officer Stuart Gulliver’s “mid-50s” target.

Revenue declined to $15.8 billion from $18.4 billion, HSBC said. That was “weaker than expected” and “remains a key area of concern for us,” wrote Gary Greenwood, an analyst at Shore Capital in Liverpool, with a hold rating on the stock.

Pretax profit in Asia fell to $3.76 billion from $5.51 billion, while earnings in Europe were little changed at about $1.8 billion.

The bank booked a gain of $1.09 billion in the first quarter of 2013 after it changed its treatment of a stake in Industrial Bank Co., according to HSBC. HSBC also sold its stake in Shenzhen, China-based Ping An Insurance (Group) Co. for about $9.4 billion in February last year.

--With assistance from Gavin Finch in London.