HSBC Holdings share price down, first-quarter pre-tax profit declines 20%

HSBC Holdings, Europes biggest bank by market capitalization, announced on Wednesday that its first quarter pre-tax profit fell by 20% from a year earlier as revenue at its investment banking unit fell due to challenging market conditions.

The London-listed bank, which makes more than half of its profits in Asia, said that pre-tax profit at its investment bank fell by a fifth to $2.87 billion as revenues slid 11% to $5.16 billion, while costs rose to $2.4 billion. However, the lender said it gained market share in several segments, among which equity and debt capital markets and advisory.

HSBC reported that overall revenues declined by 14% to $15.9 billion and pre-tax profit slid by 20% to $6.8 billion, down from $8.4 billion a year earlier. HSBCs Chief Executive Officer Stuart Gulliver said the bank is in the second phase of a turnaround, aimed at leaning its structure and enabling it to deliver better returns for its shareholders.

Mr. Gulliver said, cited by the Financial Times: “In the first quarter we maintained control of costs and further demonstrated our capital resilience. Whilst revenue was lower than the previous year’s first quarter, which benefited from a number of specific items, we have seen progress in revenue over the trailing quarters.”

In order to improve its cost efficiency, HSBC has cut more than 40 000 jobs over the past three years and closed or sold 60 businesses. However, the lender opened 1 100 jobs in the first quarter, mainly to fill positions in segments where it saw growth potential.

The banks return on equity was 11.7%, down from its target of between 12% and 15%. Cost efficiency ratio was 55.7% in the first quarter, not far off its target of mid-50s, which should be reached by 2016.

Mr. Gulliver said that the lender experienced muted customer activity in April and expects the investment banking unit, which it calls Global Banking and Markets, to post an even weaker performance in the second quarter.

The bank said revenue prospects were decent in Asia but weaker in Latin America, where it retreated from many markets in the recent years. Earnings in Latin America fell from a year earlier to $310 million for the quarter, despite a 17% drop in losses from bad debts.

Alex Potter, analyst at Mirabaud Securities in London, said, cited by Reuters: “There are good bits going on in Asia, but not as good as they once were, and theres revenue stability in Europe, but revenue falls in Latin America and still a bit of a drag from run-off portfolios.”

HSBC Holdings Plc fell by 0.78% to 599.40 pence by 11:51 GMT in London, marking a one-year change of -18.45%. Europes biggest lender is valued at 114.43 billion pounds.