Our strategy is working, CEO says as HSBC posts better-than-expected pre-tax profit of US$12.9 billion for first quarter

Lender to pay first quarterly dividend since 2019, having not paid a quarterly dividend since it cancelled its final dividend payment that year and suspended its dividend in 2020
HSBC facing pressure from some shareholders to split the bank at its annual general meeting on Friday

Banking & finance

Chad Brayin London

Published: 12:25pm, 2 May 2023

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HSBC, the biggest of Hong Kong’s three currency-issuing banks, reported a better-than-expected profit in the first quarter as it seeks to fend off renewed pressure from some shareholders to split up the bank.

The bank, one of Europe’s largest by assets, said its net profit rose to US$10.3 billion for the three months ended March 31, from US$2.8 billion in the same period a year earlier.

On a pre-tax basis, HSBC reported a profit of US$12.9 billion, ahead of the US$8.6 billion expected by analysts.

“What we see in the [first-quarter] results is evidence that the strategy is working,” Noel Quinn, the bank’s CEO, said on a call with journalists. “We’ve said for awhile that we thought the safest and fastest way to grow returns, to grow dividends and to impact the valuation of the bank is to deliver on the strategy that we embarked upon three years ago. I think the [first-quarter] results reinforce that view. We think that’s good for all shareholders and that’s our primary focus.”

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The quarterly results included a previously announced reversal of a US$2.1 billion impairment related to the planned sale of HSBC’s French retail bank as completion of the transaction has become “less certain”, and a provisional gain of US$1.5 billion on its acquisition of the UK arm of collapsed US lender Silicon Valley Bank (SVB). HSBC acquired the SVB arm in a government-negotiated rescue for £1 (US$1.25).

HSBC also said it would pay its first quarterly dividend since 2019 of 10 US cents a share. It has not paid a quarterly dividend since it cancelled its final dividend payment in 2019 and suspended its dividend in 2020. It resumed half-year and annual dividend payments in 2021. The bank also said it would buy back up to US$2 billion of its shares.

The London-based bank, which generates the bulk of its pre-tax profits in Asia, took US$432 million in reserves for potential soured loans, compared with US$639 million in the year-earlier period. The prior year’s quarter included US$410 million in provisions related to its Chinese commercial real estate loans portfolio and its exposure to Russia.

HSBC gave its latest financial report card just days after crosstown-rival Standard Chartered reported a 9.4 per cent jump in net profit to US$1.16 billion in the first quarter, driven by strong growth in its Asia and cash management businesses.

Shares of HSBC rose 4.5 per cent to close at HK$58.65 on Tuesday in Hong Kong following the announcement.

Noel Quinn, HSBC’s CEO, speaks during the Global Financial Leaders’ Investment Summit in Hong Kong in November. Photo: Sam Tsang

The results came just days ahead of the bank’s annual general meeting in Birmingham on Friday, where investors are expected to consider a set of proposals by frustrated minority shareholders to increase its dividend payouts and consider radical structural changes to the lender to increase shareholder value, including potentially spinning off its Asian arm.

Ping An Insurance Group, the bank’s biggest shareholder, has escalated a war of words over the bank’s future strategy, calling for HSBC’s Asian business to be separately listed in Hong Kong.

HSBC has pushed back, saying a spin-off of its Asian operations would result in a “material loss of value” and “significantly dilute” the international business model that underlies the bank’s strategy.

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“HSBC’s improved first quarter results, which were flattered by multiple one-off positive items and interest rate rises, do nothing to detract from Ping An Asset Management’s fundamental deep concerns about HSBC’s strategy and underlying performance,” said a spokesperson for Ping An Asset Management, which manages the insurer’s investment. “It is necessary for HSBC to push for structural reform to fundamentally address HSBC’s underlying market competitiveness issues, improve performance, enhance value and accelerate growth opportunities in Asia. ”

A portion of the bank’s shareholder base remains frustrated by the lender’s decision to suspend its dividend three years ago at the request of its chief regulator in the United Kingdom in the early days of the coronavirus pandemic.

HSBC resumed paying a dividend in 2021 and pledged to a dividend payout ratio of 50 per cent for 2023 and 2024, excluding “material significant items”, in February after announcing its biggest annual dividend payment in four years.

The bank’s results also came a day after JPMorgan Chase announced that it would buy First Republic Bank after the US regional lender was seized by regulators. First Republic is the second-biggest bank failure in US history and the third significant bank to collapse since March, after it lost US$100 billion in deposits following the failure of SVB.

“We do not believe that there is a global banking crisis on the horizon,” Quinn said. “We think there are some challenges that have been evident in some of the regional banks in the US. We do not believe that is systemic in the US across all banks and we do believe it is a global systemic issue.

“We don’t see a negative impact on our business as a consequence of First Republic.”

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HSBC’s revenue rose by 68 per cent to US$19.7 billion in the first quarter, while net interest income jumped by 36 per cent to US$8.95 billion in the period.

Net interest margin, an important measure of profitability, rose 50 basis points to 1.69 per cent, compared with 1.19 per cent in last year’s first quarter. It was 1.68 per cent in the fourth quarter.

The bank’s business in Asia saw its pre-tax profit more than double to US$5.8 billion as Hong Kong’s and the region’s economy recovers from the coronavirus pandemic. Hong Kong’s economy is expected to grow by 3.5 per cent this year and 3.1 per cent in 2024, according to the International Monetary Fund. It grew 2.7 per cent in the first quarter, Chief Executive John Lee Ka-chiu, the city’s leader, said on Tuesday.

In HSBC’s global banking and markets segment, pre-tax profit rose by 73 per cent to US$2.04 billion in the first quarter. The commercial bank reported a pre-tax profit of US$4.81 billion, compared with US$1.79 billion a year earlier.

Pre-tax profit in its wealth and personal banking segment rose to US$5.27 billion in the quarter, compared with US$1.16 billion a year earlier.