HSBC misses profit estimates on fraud-related credit loss, Iran war risks

HSBC HOLDINGS on Tuesday (May 5) reported profit that missed estimates, weighed down by an unexpected UK fraud-related charge and rising economic risks stemming from the conflict in the Middle East.

Pretax profit for the first three months of the year fell to US$9.4 billion, missing the US$9.6 billion average estimate compiled by the bank. Those results were partially offset by a resilient performance within the lender’s International Wealth and Premier Banking and Hong Kong units.

The London-based bank booked US$1.3 billion in expected credit losses for the period. This figure was driven largely by a US$400 million charge linked to what the bank described as a fraud-related, secondary, securitisation exposure with a financial sponsor in the UK. It also recorded a US$300 million increase in allowances tied to a deteriorating global economic outlook following the onset of hostilities in the Middle East.

“The group is well positioned to manage the changes and uncertainties prevalent within the global environment in which we operate, including in relation to the conflict in the Middle East,” HSBC said in its earnings statement on Tuesday.

The lender’s shares declined as much as 4.25 per cent in early afternoon Hong Kong trading. 

While HSBC has not operated in Iran for more than a decade, the conflict’s broadening scope is threatening a region the bank had targeted for aggressive wealth and corporate banking expansion. It joins several European banks, who have collectively sidelined hundreds of millions of euros to buffer against the regional instability. The heightened allowances underscore the shifting risk profile for global lenders as geopolitical tensions threaten to disrupt key growth markets.

HSBC also said it expects 2026 Expected Credit Loss charges to be about 45 basis points of average gross loans, from its previous estimate of around 40 basis points. 

The wild swings in prices of assets ranging from bonds to currencies and commodities have had a varying impact on bank earnings this season. Stock traders at Barclays have beat expectations, while fixed-income and FX fell short, broadly similar to their peers at Goldman Sachs Group. On the other hand, JPMorgan Chase notched its highest-ever quarterly trading revenue, with both equities and FICC beating estimates.

Last week, Standard Chartered took a US$296 million credit impairment charge, of which US$190 million related to what the Asia and Middle East-focused lender said was “precautionary management overlays” tied to the Gulf region.

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The Iran war has battered the region’s economies and caused disruptions to global supply chains. As the world’s largest trade bank and a key financial pipeline connecting the East with the West, HSBC is sensitive to the geopolitical ructions resulting from the hostilities.

HSBC has been on a major restructuring drive for the past 18 months ever since Elhedery took over as CEO in September 2024. The Lebanon-born banker has shut down, merged and sold several businesses in an effort to simplify the bank’s business and reduce costs. OCBC said on Monday that it is buying HSBC’s retail and wealth assets in Indonesia.

The transformation of HSBC has been welcomed by investors, with the shares hitting all-time highs this year. The outbreak of the US-Iran war caused the stock to plunge briefly before it pared most of those losses. BLOOMBERG