HSBC rules out buybacks as profit in Q1 falls 27pc

HSBC (0005) posted a 27 percent drop in its first-quarter pretax profit and nixed the possibility of more buybacks this year, as a cocktail of rising inflation, geopolitical tensions and economic weakness dented its prospects.

The bank's Hong Kong-listed shares lost 4.2 percent to close below HK$50 although the quarterly profit was still above estimates.

Pretax profit of US$4.17 billion (HK$32.53 billion) for the first quarter ending March 31 was down from US$5.78 billion a year earlier, but beat the US$3.72 billion average estimate of 16 analysts compiled by HSBC.

The London-based lender said it does not intend to pay quarterly dividends during 2022, adding that more share buybacks were unlikely given worsening economic outlook

HSBC reported an expected credit loss of US$600 million, partly driven by the Russian invasion of Ukraine and Chinese commercial real estate, compared with a release in the year-earlier period, which dragged down earnings.

HSBC's revenues fell 3 percent, in part due to Covid restrictions in the bank's biggest market of Hong Kong as its branches were closed, hitting its sales of investment products.

But chief financial officer Ewen Stevenson told reporters the bank remained "massive bulls" on growth in the region and had no plans to change strategy there or relocate staff out of Hong Kong.

The lender blamed volatility in the value of some government and corporate bonds it holds as hedges against dips in interest income for its capital hit, a trend Stevenson said could continue this year for HSBC and other banks.

Those investments will eventually result in a positive return for the bank if rate hikes proceed as expected, Stevenson said.

HSBC meanwhile is "not considering" breaking itself up, Stevenson told reporters, after media reports that an anonymous shareholder had recommended the oft-discussed move to unlock the value of the bank's component businesses.

This came as Hang Seng Bank (0011), which is a subsidiary of HSBC, declared a first interim dividend of 70 HK cents, down more than 36 percent from a year ago. Shares of the bank slumped 4.8 percent in Hong Kong yesterday.