HSBC's Q1 Pre-Tax Profit Falls Short Amid Rising Credit Losses, Shares Slip

HSBC took a hit in early trading following its release of first-quarter results that fell short on pre-tax profit forecasts. The London-based lender posted a pre-tax profit of $9.4 billion, down slightly from $9.5 billion a year ago and below analyst estimates.

Despite the earnings miss, revenue climbed 6% year-over-year to $18.6 billion, unexpectedly surpassing consensus figures thanks to robust wealth management fees and other income streams. Still, the market's focus zeroed in on rising credit costs.

The bank's expected credit losses jumped to $1.3 billion for the quarter, which was $400 million higher than the same period last year. That uptick stemmed largely from exposure to a financial sponsor in the UK and growing economic uncertainties spurred by the Middle East conflict.

Shares in 0005.HK (HSBC's Hong Kong listing) dropped 4.6%, while the London shares slid 5.2% shortly after the market opened, reflecting investors' concerns about the elevated loan loss provisions.

HSBC CFO Pam Kaur said the bank felt "fairly comfortable" with the $1.3 billion charge and believes it is adequately prepared for various downside scenarios. The bank is tracking toward a $1.5 billion annualized cost reduction by mid-2026, including anticipated revenue and cost synergies from the Hang Seng Bank privatization completed earlier this year.

Net interest income grew 8% to $8.9 billion, offsetting some pressure from operating expenses that also rose 8%, fueled by inflation, currency swings, and higher performance-based pay.

HSBC warned about potential risks tied to geopolitical tensions in the Middle East. If oil prices spike and global growth slows significantly, profit before tax could take a hit ranging from mid- to high-single-digit percentages. This scenario could push the return on tangible equity (RoTE) below the bank's 17% target for 2026, although the recent quarter's annualized RoTE came in at a solid 18.7% excluding notable items.

The board approved an interim dividend of 10 cents per share, marking the first payout of 2026. While the numbers paint a mixed picture, the underlying strength in revenue and cautious provisioning stand out.