HSBC expected to report big surge in profit

Average forecast of 80 per cent gain for the first quarter, a strong season for the banking giant

PUBLISHED : Tuesday, 07 May, 2013, 12:00am
UPDATED : Tuesday, 07 May, 2013, 3:56am

HSBC may post first-quarter pre-tax profit of US$8 billion, 80 per cent higher than in the previous quarter, according to an average estimate of five analysts.

Deutsche Bank, Mizuho Securities, Nomura, Societe Generale and UBS expect the banking giant to report a profit between US$6.73 billion and US$9.72 billion after the market closes today.

That represents a surge of 52 to 119 per cent from the previous quarter, and 56 to 125 per cent from the same period last year.

The first quarter is usually a strong season, especially for the global banking and markets group, HSBC's investment banking arm, UBS said in a report.

Sally Ng, an analyst at China International Capital Corp, said HSBC had room for further restructuring, as "it can do much more to simplify the structure of the bank and increase the cross-sale efficiency of products".

She expected the bank to keep its asset quality in good shape.

"One of the major problems of HSBC is that it is simply too large, and the growth in revenue from developed countries is always offset by the growth in operating costs," said an analyst, who asked not to be named.

HSBC is likely to announce further measures on its strategy day, May 15, to bring down costs, Deutsche Bank said.

The cost-income ratio worsened and return on equity fell to 8.4 per cent at the end of last year, well short of the target range in the first three-year plan chief executive Stuart Gulliver presented in 2011.

Goldman Sachs, estimating HSBC's pre-tax profit at US$8 billion, said revenues and income from associates might have fallen for the bank after it disposed of many assets last year, but those declines would be largely offset by lower costs and improvement in impairment charges.

While growth opportunities remained for the bank, they could come at the expense of margin, Barclays said, after examining 15 countries that account for 90 per cent of HSBC's activities.

Barclays expected the bank's costs to fall because of less inflationary pressure. It said impairments should continue to decline in the light of further improvements in the United States. The firm set a target of HK$92 for HSBC shares.

The stock rose 0.94 per cent to close at HK$86.05 yesterday.