HSBC Holdings Plc (HSBA), Europe’s largest bank, said first-quarter profit rose 26 percent, beating analyst estimates, helped by increased income at its securities unit and a decline in U.S. loan losses.
Pretax profit, excluding losses on the revaluation of HSBC’s own debt, rose to $6.8 billion from $5.4 billion in the year-earlier period, the London-based bank said in a statement today. That beat the $5.9 billion median estimate of 13 analysts surveyed by Bloomberg. Investment-banking revenue climbed 12 percent, led by the lender’s rates and foreign-exchange units.
Markets remain volatile with high levels of debt and regulatory and political uncertainty in developed economies, contrasting with an encouraging outlook in faster-growing markets,” Chief Executive Officer Stuart Gulliver said in the statement. “Our performance in April has been satisfactory.”
Impairments for bad loans in the U.S. fell by about $500 million from the year-earlier period, HSBC said today. The lender, which operates in about 85 countries, has set aside more than $65 billion for souring loans in North America following its 2003 purchase of Household International Inc., which lent to U.S. customers with subprime credit.
“The first quarter has been an impairments story for HSBC,” said Chirantan Barua, an analyst at Sanford Bernstein Research in London who has an outperform rating on HSBC. “if you look at the U.S. subprime book, it’s holding up.”
HSBC shares rose as much as 18.9 pence, or 3.4 percent, to 574 pence in London and traded at 560.5 pence at 10:08 a.m. local time, for a market value of about 102 billion pounds.
Pretax profit at the investment bank, which is overseen by Samir Assaf, rose 5 percent to $3.08 billion.
Group pretax profit, including the revaluation of HSBC’s own debt, acquisitions and sales of businesses and other charges, fell 12 percent to $4.3 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 realized were the bank to repurchase that debt.
HSBC may not be through incurring costs related to the U.S. subprime crisis. Some U.S. states have introduced moratoriums on foreclosures, which added to third-quarter provisions, HSBC said in November. The S&P/Case-Shiller index of property values fell 3.5 percent from a year earlier, the smallest 12-month drop since February 2011, data released on April 24 showed.
HSBC acquired Household for $15.5 billion and gained almost 50 million U.S. clients. It stopped taking new business in 2009 and had about 8.8 million active customer accounts at the end of 2011, according to a company filing. HSBC North America returned to profit in 2010 after three years of losses, asset sales and more than 6,000 job cuts, Bloomberg reported.
