HSBC net profit climbs 57.8pc in quarter

HSBC Holdings' earnings jumped 57.8 per cent in the first quarter, but chief executive Stuart Gulliver said it could take three years for the bank to reach its key cost reduction target.

Analysts said the key test of whether Gulliver, chief executive since January, could restore investor confidence would come tomorrow, when he is expected to unveil its detailed strategy to cut costs.

For every GBP1 billion (HK$12.73 billion) of savings, HSBC's cost-income ratio could decline by 2.3 percentage points and pre-tax profit could rise 7.2 per cent this year, Steven Chan, MF Global's head of Asian financial research, said in a report.

In an unusual move, HSBC yesterday released detailed first-quarter figures. In the past, it only issued complete figures every six months.

'I suppose I am keen to drive up share prices,' said Gulliver. The move would also help narrow the information gap between what was happening and what analysts were putting into their models.

First-quarter net profit rose to US$4.15 billion from US$2.63 billion a year earlier.

'The main reason HSBC's net profit rose was because of lower impairment charges and provisions and a drop in tax,' said Louis Wong Wai-kit, a director of Phillip Capital Management.

Provisions, the money banks set aside to pay for future losses, are a leading indicator of expected losses.

Provisions and loan impairment charges continued to improve, falling by 37 per cent to US$2.4 billion, the lowest quarterly level since the second quarter of 2006.

The bank's effective tax rate fell to 10 per cent, down 39.2 percentage points from a year earlier. The high effective tax rate in last year's first quarter was because of a tax charge on the sale of HSBC Bank Canada to its British parent company.

However, profit before tax fell 14.1 per cent to US$4.9 billion.

'On one hand HSBC's costs are rising fast, but on the other hand they aren't generating enough income,' said Louis Tse Ming-kwong, a director of VC Brokerage.

The bank's cost-income ratio rose two percentage points to 60.9 per cent because of higher staff costs and several one-off items, including restructuring costs of US$67 million in Latin America and a US$440 million provision to cover the costs related to the mis-selling of payment protection insurance in Britain.

Net interest margin fell about 0.18 percentage point to 'within the range of 2.5 per cent', Gulliver said.

Net trading income, a key revenue source for the bank, dropped 11 per cent to US$2.56 billion.

Bottom line

The amount of earnings attributable to HSBC Holdings' shareholders in the first quarter of this year, in US$: $4.2b