Is this perhaps a tip for the big three Australian banks and their March half year results next week?
HSBC lifted first quarter earnings 79% and topped expectations, as the Asia-skewed lender recovers from the economic damage caused by the coronavirus pandemic and the problems in Hong Kong in 2019 and 2020.
Europe’s biggest bank by assets on Tuesday reported profit before tax was $US5.78 billion for the three months ended to March 30, up from $US3.21 billion a year ago and well above analyst forecasts of $US3.35 billion.
HSBC’s improvement suggests that the March quarter results of America’s big six banks were not a one off with their better than forecast profits.
That was even after taking into account billions of dollars returned to P/L accounts from being tucked away in reserve provisions in 2020 for pandemic related defaults and bad debts that didn’t eventuate.
HSBC’s reserves release was a modest $US435 million – US banks released far more – JPMorgan actually released $US5 billion.
HSBC said the release “reflected an improvement in the economic outlook, notably in the UK”. HSBC had set aside $US3 billion in the first quarter of 2020 as the impact of the pandemic began to hit.
HSBC said its credit losses for 2021 were likely to be below the medium-term range of 30-40 basis points it forecast in February.
Revenue fell 5% in the quarter to $US13.3 billion from a year ago as low interest rates in its main markets hurt the bank’s ability to generate large revenues from lending.
The bank’s return on equity improved to a solid 10.2% from the ultra-weak (understandably) 4.2% a year earlier.
HSBC said it was well into its new strategy of focusing on wealth clients and investors in Asia.
It wants to earn more revenue from client fees rather than the interest rate difference between the interest rates the bank offers savers and charges borrowers the net interest margin).
It said it had already cut $US400 million in costs from the business.
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.
