HSBC's first quarter profit more than doubled on an improved economic outlook and a reversal of credit losses as the bank's operations in Europe and the US rebounded and its strategic shift to Asia began to reap dividends.
The adjusted pre-tax profit of Europe's largest lender by assets, soared 109 per cent to $6.4 billion for the three months to the end of March from the same period in 2020, HSBC said in a statement on Tuesday. The quarterly income beat Bloomberg's estimate of $4.3bn.
“We had a good start to the year in support of our customers, while achieving materially enhanced returns for our shareholders," Noel Quinn, group chief executive, said.
"I am pleased with our revenue and cost performance, but particularly with our significantly lower expected credit losses ... we saw solid business growth in strategic areas."
The bank released $400 million of cash reserved for expected credit losses in the first quarter of this year due to "an improvement in the economic outlook from 2020." That compares with a $3bn charge the bank took for loan losses in the first quarter of last year.
There is still a high degree of uncertainty as countries emerge from the pandemic at different speeds and as government support measures start to unwind.
Based on current economic forecasts, HSBC expects credit losses for 2021 to be below the medium-term range of 30 to 40 basis points of average loans.
Easing credit losses have helped HSBC turn its business in the UK, which reported pre-tax profit of over $1bn in the quarter. The bank's operations in the US have also grown in the first quarter, even as the lender continues to push for expansion in Asian markets.
The bank's wealth management business in Asia performed well as did trade finance and mortgages in Hong Kong and the UK.
"Global banking and markets had a good quarter, and we saw solid business growth in strategic areas ... we also strengthened our lending pipelines in our retail and wholesale businesses," Mr Quinn said.
As part of its strategic review, the bank is continuing negotiations for a potential sale of its retail banking operation in France.
In the US, It is exploring both organic and inorganic options for its retail banking business, HSBC said.
Lenders globally are facing improved operating conditions as businesses stabilise and economies around the world shake off the pandemic-driven slowdown. Earlier this month, the International Monetary Fund upgraded its global economic forecast on a better-than-expected recovery in some developed economies. The global economy is now forecast to expand 6 per cent in 2021 after tipping into its worst recessions since the 1930s last year.
HSBC is in the middle of a restructuring and has shed 35,000 jobs to reduce its headcount to about 200,000. The bank said it continues to make progress on its strategic plan announced in February 2021, which responds to the fundamental changes in the operating environment.
HSBC plans to reduce its cost base by $5.5 billion and expects to provide an update on the progress in August.
"The execution of our growth and transformation plans is proceeding well," Mr Quinn said. "We made further progress in reducing both costs and risk-weighted assets, and launched new products and capabilities in areas of strength."
The banks said its reported revenue for the first first three months of the year was down 5 per cent to $13bn due to the impact of 2020 interest rate reductions in all global businesses. However, it was partly offset by market impacts on life insurance, manufacturing and valuations in its global banking and markets business.
HSBC's operating expenses also climbed 9 per cent on the back of higher restructuring and other costs related to its transformation programme and increased investment in technology.
The bank has no plans to pay quarterly dividends in 2021, as indicated earlier this year and will consider whether to announce an interim dividend in August.
"The economic outlook has improved, giving us increasing confidence in our revenue growth plans," Mr Quinn said. "While early signs are positive, with evidence of growth in strategic areas, including improved lending pipelines, there remain uncertainties."