HSBC Holdings (HSBA.L) said on Tuesday its profit tripled in the first quarter, beating expectations, as rising interest rates boosted the lender’s income and helped it pay a first quarterly dividend since 2019.
The strong results of HSBC and its Asian rival DBS (DBSM.SI) underscore the boost to their balance sheets from aggressive policy tightening, even though it has brought banking sector turmoil, chiefly in the U.S.
With the rate cycle nearing a peak, the challenge for the likes of HSBC, Europe’s largest bank, and DBS will be to sustain their margins this year and beyond.
HSBC CEO Noel Quinn said the results showed its strengths in a rising rate environment, and played down the risks of further contagion for the banking sector.
HSBC posted a pretax profit of $12.9 billion for the quarter ended March, versus $4.2 billion a year earlier. The profit was much higher than the $8.64 billion average estimate of 17 analysts compiled by the bank.
Hong Kong shares of HSBC rose 3.3% in afternoon trading.
HSBC’s headline profit was boosted by a reversal of a $2 billion impairment it took against the planned sale of its French business, reflecting the fact that the deal may not go through.
It had warned last month that its France disposal could be in jeopardy over regulatory capital concerns for the buyer.
The London-headquartered bank also reported a delay in the time frame for the completion of the sale of its Canada business, a key part of its strategy to shrink in slow-growing Western markets where it lacks scale.
HSBC has tried recently to accelerate its pivot to Asian markets, in part to head off calls from its biggest shareholder, Ping An Insurance Group Co of China (601318.SS), to spin off the Asia unit to boost shareholder returns.
Shareholders will vote at the bank’s annual meeting on May 5 on two resolutions filed by a Hong Kong investor and supported by Ping An, calling for higher dividends and a regular update on strategic proposals such as the spin-off plan.
HSBC, which has opposed the resolutions, criticised the spin-off proposal again on Tuesday. Shareholder advisory firms Glass Lewis and Institutional Shareholder Services have recommended that investors vote against the proposal, which requires a 75% approval to pass.
Norway’s state investment fund, the bank’s fourth biggest shareholder with 3% ownership, has also said it will vote in line with HSBC.
The British lender announced a dividend of $0.10 per share and flagged the first of a new cycle of buybacks of up to $2 billion.
“With the good momentum we have in our business, we expect to have substantial future distribution capacity for dividends and share buybacks,” Quinn said in the results statement.
HSBC, in common with some other British lenders, reported deposits fell 0.6% for the quarter to $1.6 trillion, excluding those it acquired by bailing out the local arm of failed U.S. lender Silicon Valley Bank and the reclassification of French retail deposits. Quinn said the drop was “nothing significant”.
Big European banks have reported deposits falling as consumers, faced with a cost of living crisis, eat into savings and shop around for higher-paying products such as fixed-term deposits and investment funds.
Despite the surging profit, HSBC did not raise its key performance target of reaching a return on tangible equity of at least 12% from this year onwards, while analysts were estimating the key metric would be lifted.
HSBC’s results showed a strong overall performance but the lender’s failure to upgrade its outlook as a result was overly cautious, analysts at Citi said.