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HSBC first-quarter profit better than expected

HSBC

HSBC yesterday unveiled better-than-expected first-quarter profit, but the result was overshadowed by losses in Europe and a worse-than-expected rise in claims for payment protection insurance (PPI) in Britain.

The bank's profit before tax fell 12.2 per cent to US$4.3 billion. Excluding adverse credit spread movements of US$2.6 billion on the fair value of its debt, underlying profit before tax rose 25 per cent to US$6.8 billion, higher than the US$5.6 billion that had been forecast by CCB International.

The main factors that drove this improvement were increased revenues in global banking and markets, commercial banking, retail banking and wealth management, chief executive Stuart Gulliver said. 'Our performance in April has been satisfactory.'

In Europe, HSBC suffered a pre-tax loss of US$997 million, against profit of US$652 million in the year-earlier period, driven by adverse movements in credit spreads on fair-value of debt of US$2 billion.

Credit valuation adjustments require banks to book losses when the value of their debt rises, and gains when it declines, on the theory that a loss, or profit, would be realised if the bank has to buy back the debt.

While markets have expressed concern at political upheaval in Europe and Sunday's election of socialist Francois Hollande as French president, Gulliver was sanguine.

He said Hollande's accession was not a significant worry for HSBC, which also had manageable exposure to Greece, Portugal and Spain.

CCB said in a report on Monday that most of HSBC's revenue came from Europe and the US posing a risk.

'In the event of a recession in developed markets, HSBC has considerable exposure to these geographies. There is a risk that the debt crisis in Europe could spread and the contagion could act as a catalyst for a global slowdown,' it said.

HSBC's revenue rose 16 per cent year on year in Hong Kong, 18 per cent in the rest of the Asia-Pacific and 7 per cent in Latin America. Total global revenue fell 4.7 per cent to US$16.2 billion.

Hong Kong accounted for one-third of HSBC's profits, Citi said in a report before the results announcement.

Despite HSBC undertaking job cuts, its Hong Kong headcount will remain unchanged at 29,000 for the rest of this year, Gulliver said. 'Net-net, we cut no one,' he said.

Last year, the bank launched a programme to save US$3.5 billion by next year through shedding 30,000 jobs globally, including 3,000 in Hong Kong, although fewer than 3,000 local jobs have been cut.

Gulliver said 14,000 of the planned 30,000 global job cuts had gone through.

HSBC made a further provision of US$468 million against PPI claims in Britain. It had paid US$504 million in claims in the past five quarters.

As of March 31, it had a balance sheet provision of US$777 million for PPI, an insurance policy guaranteeing borrowers' payments if they are unable to pay because of illness or unemployment.

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