May 20, 2018

HSBC Q1 profit misses estimate, unveils $2 bln new share buyback

05 May 2018, 01:32 | Kenneth Drake

HSBC Q1 profit misses estimate, unveils $2-bn share buyback

HSBC office

Europe's largest banks by assets posted profits before tax of $4.8 billion in the first three months of 2018, down by 4 percent, compared with the same period previous year, according to the bank's statement released on Friday. The group's reported profit before tax, however, fell four percent to $4.8 billion, with higher operating expenses offsetting the rise in revenue. It also made what it called "strategic hires" in its onshore Chinese securities venture, and invested to improve the digital capabilities in all global businesses.

"We are engaged in active discussions with the Department of Justice with a view toward potential resolution of civil claims", and had taken as a provision because negotiations had "developed" during the last quarter, the lender said in a news release Friday.

HSBC said the reason for the fall was due to a 13% increase in operating expenses compared to a year ago, related to the retail banking business in the United Kingdom and China.

Europe's biggest bank by assets, which earns most of its profits in Asia, has long struggled to hit its cost control targets.

He added that he was positive about the outlook for 2018.

"Given the growth opportunities we now see, we expect this to be the only share buyback that we announce in 2018", Europe's biggest bank by assets said, adding the process was expected to start shortly.

Return on equity for the bank fell compared with the same quarter a year ago, from 8 per cent to 7.5 per cent. However, achieving a 10% return for 2018 "looks hard", Finance Director Iain Mackay said on a call with reporters.

"This targeted spending contributed to a rise in adjusted costs in the first three months of the year", HSBC's group chief executive, John Flint, said in a statement.

The bank has announced four buy-backs since 2016, buying a combined US$5.5 billion of shares in the previous three occasions. Reuters reports that the result had fallen short of the $5.76 billion average of analysts' estimates compiled by the bank.

Rising interest rates helped the bank generate more profit from a large base of deposits after years of low rates in the United States pushed down margins.

"We continue to benefit from interest rate rises and economic growth, particularly in Asia", Mr Flint said. "Its peer, Bank of China Hong Kong, has reported quite good quarterly figures end of last month, we expect HSBC to do the same or even a little bit better".

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