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HSBC profits down 18% in volatile market

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HSBC has reported an 18 per cent drop in adjusted profits, as the giant lender faces “challenging market conditions”.

Adjusted profits of $5.4bn (£3.6bn) were down from $6.6bn the year before, while reported profit before tax dropped to $6.1bn, down 14 per cent from $7.1bn a year ago.

Meanwhile, adjusted revenue also fell to $13.9bn, down by four per cent.

HSBC does not give a UK breakdown, but says that the UK was the country with the highest increase in its residential mortgage balances.

The bank added: “Gross yields on customer lending remained under pressure, notably in mortgages and term lending in the UK, as well as from the continued run-off and sales in the US CML portfolio.”

However, this was mainly offset by a drop in the cost of providing customer accounts in Asia, the bank says.

HSBC group chief executive Stuart Gulliver says: “Our first quarter performance was resilient in tough market conditions that affected the entire banking sector.

“Profits were down against a very strong first quarter of 2015, but we increased market share in many of the product areas that are critical to our strategy.”

In particular Gulliver says commercial and retail banking as well as its wealth management unit saw increasing market share and a boost in revenue.

Despite the negative results Hargreaves Lansdown senior analyst Laith Khalaf says investors had expected a worse scenario for HSBC and pointed to the fact the bank is not alone among other major UK banking stocks to suffer on profits.

Khalaf says: “It is still very much work in progress at HSBC as the bank is engaged in a major repositioning, which will see it become much more focused upon its Asian roots and far less exposed to volatile investment banking activities.

“While currently problematic, the focus on Asia could prove rewarding in the long term, if HSBC executes its strategy well.

“HSBC is still the biggest single stock in the UK stock market, so UK investors and pension savers will be hoping the bank gets it right, because it makes up such a large part of their portfolios.”

HSBC also confirmed it will be maintaining its first quarter dividend of $0.10 per share.

At last month’s much-awaited AGM meeting, group chairman Douglas Flint said “we are ever more conscious of the importance of our dividend to shareholders”.

In March, UK rival Barclays announced it was halving its dividend for the next two years in order to preserve capital.

Khalaf says: “One of the headwinds HSBC has been battling is a deterioration of its loan book, with impairment costs doubling from last year, led by problems with borrowers in the energy and mining sectors.

“Nonetheless HSBC declared an unchanged dividend of 10 cents, which was twice covered by earnings over the quarter. Investors are clearly concerned on this front though, because a 7.5 per cent yield on the stock suggests the market is sceptical the dividend can be maintained.”

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