HSBC Q1 profit soars as vaccine roll-out sparks cautious optimism

London

HSBC Holdings reported a better than expected first-quarter profit and released US$400 million it had set aside to cover pandemic-induced bad loans, as successful vaccine roll-outs in the United States and Britain prompted a brighter economic outlook.

HSBC cautioned, however, that uncertainty about the global recovery meant it was unlikely to sustain that level of reduction in the US$3 billion bad debt provision it had set aside a year ago as the pandemic took hold.

"We are still being relatively cautious, and we've retained about 70 per cent of the reserve build up we did last year," chief financial officer Ewen Stevenson said. "Some of that you would expect to unwind over the next year or so, but we don't know we are going to see a repeat of what we just saw," he added.

Europe's biggest bank by assets on Tuesday posted profit before tax of US$5.78 billion for the three months ended March 31, up from US$3.21 billion a year ago and well above an average analyst forecast of US$3.35 billion compiled by the bank.

However, this compared with US$6.21 billion in the same period in 2019, showing the lender still has some way to go to get back to pre-pandemic profit levels.

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The bank, which makes the bulk of its profits in Asia, said its credit losses for 2021 were likely to be below the medium-term range of 30-40 basis points it forecast in February.

"We are more optimistic than we were back in February, we expect GDP to rebound in every economy in which we operate this year," chief executive Noel Quinn said, citing the successful roll-out of vaccines in the US and Britain as a key factor.

HSBC's improved outlook and profits paled in comparison to US rival JPMorgan, which earlier this month reported a 400 per cent increase in quarterly profit and released more than US$5 billion in bad loan provisions.

That partly reflected the European lender's heavy reliance on global interest rates to make money, which it said in February it will try to address by shifting to more fee-based business, such as wealth management.

HSBC also said on Tuesday that it was continuing negotiations for the sale of its French retail banking business, but no final decision has been taken. Reuters reported last month that HSBC had entered final negotiations to sell the business, which has 270 branches, to private equity firm Cerberus.

HSBC is the first of Britain's big banks to announce first-quarter earnings. Lloyds Banking Group is due to report on Wednesday, Standard Chartered and NatWest Group on Thursday, and Barclays on Friday. REUTERS