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HSBC’s profits drop 28% amid Ukraine war fallout

HSBC's  profits fell by 28% in the first three months of the year as the Russia-Ukraine war continues to have 'devastating consequences'. Photo: Brendan McDermid/Reuters
HSBC's profits fell by 28% in the first three months of the year as the Russia-Ukraine war continues to have 'devastating consequences'. Photo: Brendan McDermid/Reuters

HSBC's (HSBA.L) profits fell by 28% in the first three months of the year as the lender was hit by provisions for souring loans in Russia.

Europe’s largest lender recorded profit before tax of $4.2bn (£3.29bn) for the first quarter of the year, a decline of $1.6bn from the same period last year.

HSBC’s earnings were dented by $642m of new expected credit losses, which include $250m linked to Russian borrowers, and some $160m tied to China’s property sector.

A year ago, HSBC started cancelling $400m in reserves it had set aside for potential pandemic-related loan losses.

Read more: HSBC boosts bonuses to £2.6bn as annual profits double

Revenue fell 4% from a year ago to $12.5bn, falling just short of the $12.7bn forecast made by analysts.

"While profits were down on last year's first quarter due to market impacts on wealth revenue and a more normalised level of ECL (expected credit losses), higher lending across all businesses and regions, and good business growth in personal banking, insurance and trade finance bode well for future quarters," chief executive Noel Quinn said in a statement.

The bank said it continued to expect "mid single-digit percentage" growth this year for revenue and lending respectively.

HSBC’s Hong Kong-listed shares fell 3.5% in the trading session on Tuesday.

“The Russia-Ukraine war continues to have devastating consequences both within Ukraine and beyond,” Quinn added.

“HSBC Russia is not accepting new business or customers and is consequently on a declining trend.

“The vast majority of our business in Russia serves multinational corporate clients headquartered in other countries, and as a global bank, HSBC has a responsibility to help them manage these challenging circumstances.”

The bank forecast its operation in Russia may become "untenable" if subject to further restrictions.

HSBC's restructuring effort has led it to slash 35,000 jobs and sell its retail operations in the United States and France.

Richard Hunter, head of markets at Interactive Investor, said “HSBC has opened the banks’ reporting season in unspectacular fashion, with the return of loss provisions an unfortunate highlight.

"In the corresponding quarter last year and after the effects of the pandemic had been less severe than forecast, HSBC released $435m of impairments. This year the bank has taken a charge of $642m, with this $1bn swing being the major factor for lower profits. The charge largely relates to deteriorating economic situations in both Russia and China, with general inflationary pressures leading the bank to caution on the likelihood of defaults."

Read more: HSBC to shut 69 bank branches with 400 jobs affected

Russ Mould, investment director at AJ Bell, added: “The bank’s share price fell despite beating expectations as investors focused on slowing growth in Hong Kong and a hike in expected losses associated with bad debts linked to the war in Ukraine and mounting inflation.

“This represents a reversal from the situation a year ago when the promise of a COVID recovery meant the banking sector was able to release some of the cash buffers built up to withstand the pandemic.

“HSBC has also been affected by the slowdown in investment banking – a year ago buoyant markets and surging M&A generated plenty of commission.

“Investors’ interest in HSBC is heavily linked to increased penetration of banking in less mature markets in Asia. With the impact of increased restrictions that growth outlook is clouded which negatively impacts sentiment towards the stock.

“Its decision to maintain operations in Russia may come under increasing scrutiny despite a robust defence alongside today’s update."

Watch: HSBC boosts profit goal on higher rates