HSBC First Quarter Profits Dive 14% To £4.2bn

HSBC has reported a 14% fall in first quarter pre-tax profits to $6.1bn (£4.2bn) - with the bank blaming tough market conditions at the start of the year.

The bank, Europe's biggest lender, said the stock market collapse in January sparked by falling world oil prices and fears over China's economy had "reduced client activity".

Revenue fell 4% compared to the same period last year to $13.9bn, HSBC said, adding that on an adjusted basis net profits were 18% lower at £2.9bn as a higher tax bill hit.

Chief executive Stuart Gulliver said: "Market uncertainty led to extreme levels of volatility in January and February, which affected our ability to generate revenue in our Markets and Wealth Management businesses.

"However, our diversified, universal-banking business model helped to cushion the impact through growth in other parts of the bank.

"Commercial Banking continued its momentum in spite of the slow-down in global trade, and we increased market share across our strategic trade corridors.

"We also grew revenue elsewhere in Retail Banking and Wealth Management, particularly from current and savings accounts in Hong Kong and the UK, and personal lending in Asia and Mexico."

The bank - which confirmed earlier this year it was to keep its headquarters in London - said its effective tax rate for the first quarter of 2016 was 25.7%, up from 19.4% in the same period a year ago "principally due to the 8% surcharge on UK banking profits".

But HSBC said its cost-cutting efforts - which include previously announced plans to axe 50,000 jobs by the end of 2017 - were helping offset tax increases and declining earnings.

HSBC's results statement completed the latest reporting season for major UK-based banks - with all of them taking a hit from the market volatility at the start of 2016 but none announcing any major writedowns associated with past mistakes.

HSBC, like its rivals, remains burdened by the payment protection insurance mis-selling scandal in the UK and other legacy issues which have also held down profits since the financial crisis.

Shares in HSBC were almost 3% higher when the FTSE 100 opened for business on Tuesday in reaction to the results.

Laith Khalaf, senior analyst at the brokerage Hargreaves Lansdown, said: "It’s tough out there for banks, and HSBC is no exception, particularly seeing as it is increasingly focusing its business on Asia, which is a weak market right now.

"However in common with several other UK banking stocks, things weren’t quite as bad at HSBC as investors had feared.

"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".