HSBC Tops Estimates as Investment Banking Unit Rebounds

HSBC beat expectations with an underlying first-quarter profit of $6.8 billion as Europe's biggest bank saw a rebound in investment banking, growth in Asia and a fall in U.S. bad debts.

HSBC said on Tuesday it was making good progress on its strategic revamp, including cost savings, and had shed 14,000 jobs since last year as part of chief executive Stuart Gulliver's drive to boost profitability.

"We are pleased that the measures that are under our control, we are getting some serious traction on," Gulliver told reporters.

He pointed to Hong Kong, the rest of the Asia-Pacific region and Latin America as showing the benefit, with revenues up 16 percent, 18 percent and 7 percent on the year respectively, and highlighted strong performances by the group's commercial bank and investment bank operations, called Global Banking and Markets (GBM).

HSBC, which makes over three quarters of its profits outside Europe and north America, has bounced back more strongly from the 2008 financial crisis than many competitors, helped by its presence in faster-growing emerging markets.

However, it is facing the same regulatory pressure as rivals to reduce risks, as well as volatile financial markets.

Regulatory and political uncertainties continue to create "significant headwinds" in developed economies, the bank said. In contrast, China's economy should have a soft landing and emerging market economies should show growth of more than 5 percent this year, it predicted.

Gulliver is quitting areas where HSBC lacks scale and increasing its focus on Asia. He will provide a more detailed update on strategy at an investor day on May 17.

"We view this as an encouraging update ahead of the company's forthcoming strategy day," said Gary Greenwood, an analyst at Shore Capital.

"Highlights include a strong recovery in the Global Banking and Markets business, a reduction in the underlying cost income ratio ... and a reduction in impairments," he said.

Expenses climbed on the year to $10.4 billion due to a rise in bonuses at the investment bank and wage inflation in certain regions, such as Asia, but underlying costs as a percent of revenue improved to 55.5 percent from 58.7 percent a year ago.

Gulliver wants to get that level below 52 percent, which some analysts said could be tough, and to lift return on equity (RoE) above 12 percent by the end of 2013. RoE, a key measure of profitability, came in at 6.4 percent, although on an underlying basis it was nearer 11 percent, the bank said.

"We are confident we can hit 12-15 percent RoE and are not going to change it (the target)," Gulliver said.

INSURANCE MIS-SELLING

HSBC said underlying first-quarter profit rose 25 percent to $6.8 billion, compared with a forecast for $5.8 billion. Including a $2.6 billion hit from the movement in the value of its own debt, HSBC's statutory profit was $4.3 billion.

HSBC shares were up 1.0 percent at 560.6 pence by 1045 GMT, outperforming a 1.1 percent drop in Europe's bank index.

The bank joined rivals in lifting its charge for the mis-selling of payment protection insurance in Britain, taking another $468 million provision. It has now set aside 745 million pounds ($1.2 billion), and Gulliver said that may not be enough.

"The volume of claims has increased quite significantly over what our original assumptions were. I cannot say if this is the final provision, I doubt it, we may find we have to top it up again," he said.

GBM's revenues came in at $5.8 billion, up 11 percent from the 2011 period and a big improvement on the final quarter of last year, echoing trends seen among rivals.

Rates and currencies income were particularly strong, and April had been satisfactory, Gulliver said.

Losses from bad debts in the quarter were $2.4 billion, broadly flat from a year ago, but improved in the United States due to better foreclosure and impairment trends, where the bank is running down its consumer loans book.

($1 = 0.6180 British pounds)