Quarterly profits fall 9% in Middle East for HSBC

HSBC did not give a reason for the decline in regional earnings, but appetite for debt from corporations in the UAE has dampened amid the sharp drop in oil prices.

HSBC said first-quarter profit in the Middle East slipped 9 per cent, dragged down by lower returns from its commercial banking business.

Profit before tax decreased to US$457 million in the first three months of the year from $502m in the corresponding period last year. Profit before tax at the bank’s biggest cash cow in the region, its global banking and markets division, declined 7 per cent to $227m during the quarter, while commercial banking income fell 19 per cent to $147m compared to a year earlier. Global banking and markets is the bank’s investment banking arm.

HSBC did not give a reason for the decline in regional earnings, but appetite for debt from corporations in the UAE, especially those that are sensitive to the fluctuation in the price of hydrocarbons, has dampened amid the sharp drop in oil prices. Because the price of oil has lost about half its value over the past year, lenders in the UAE have focused their efforts on luring individual customers and beefing up their wealth management product ranges, where the margins they get from this riskier segment are higher than those from corporate customers.

To that end, HSBC said profit before tax from its retail banking and wealth management division grew 11 per cent to $91m in the first quarter, while profit before tax from its global private banking business increased 25 per cent to $5m.

HSBC sold its operations in Pakistan and Jordan last year and that also contributed to lower overall earnings from the region compared to the first quarter of 2014.

As a group globally, HSBC said first-quarter profit rose 4.4 per cent, beating analysts’ estimates, as revenue at its securities unit rose and bad loan provisions dwindled.

Pretax profit rose to $7.1 billion from $6.8bn a year earlier. That beat the $5.8bn average estimate of five analysts compiled by Bloomberg. The investment bank reported pretax profit of $3.04bn, up from $2.9bn a year earlier, while provisions for souring loans fell 29 per cent to $570m in that period.

“Our business recovered well in the first quarter following a difficult fourth quarter,” the chief executive Stuart Gulliver said. The investment bank “had its usual strong start to the year” and “loan impairment charges were significantly lower” in Europe and North America, he said.

Mr Gulliver has been cutting costs and selling businesses to bolster earnings, while spending billions in dollars to boost internal compliance. Unlike Barclays and Royal Bank of Scotland Group, HSBC did not need to make further provisions in the quarter to cover the cost of settling investigations into the rigging of currency markets.

HSBC shares fell 2.3 per cent in late afternoon trading in London after rising as much as 1.4 per cent in the morning. They have increased about 3.3 per cent this year.

* with Bloomberg News

Follow The National's Business section on Twitter