HSBC profit up, bad debts rise
A strong performance in Asia has helped HSBC report first-quarter profits ahead of last year's, despite a further $2.6bn in credit crunch-related write-downs and a $3.2bn impairment charge.
However, the multi-national banking group said the outlook for the rest of the year remains unusually difficult to foresee in the current environment, adding that it seems "increasingly likely" that the US will fall into recession this year.
Pre-tax profits rose in all major emerging markets in Asia-Pacific, the Middle East and Latin America, but US profit was down as a result of higher consumer finance loan impairments and additional write-downs in global banking and markets.
Loan impairment charges in HSBC's US consumer finance business were in line with expectations at $3.2bn compared with $1.6bn last year. European businesses performed well with the UK retail business increasing pre-tax profit.
The group's underlying revenue growth was comfortably ahead of the first quarter in 2007 and remained positive after excluding $2.7bn of fair value gains on its own debt. Underlying cost growth over the same period was modest.
(Article continues below)Advertisement
Pre-tax profit in global banking and markets was lower than in the equivalent quarter in 2007 but higher than in the third and fourth quarters of 2007. This was despite write-downs of $2.6bn relating to the continued credit market disruption which were off-set by strong performances in a number of other businesses.
The group's commercial banking business continued to grow strongly in line with recent trends, reporting record profits in the first quarter. Income increased significantly, particularly in emerging markets, despite a reduction in earnings from deposit products as a consequence of lower interest rates in the US.
Strong revenue growth was reported in foreign exchange and interest rate trading, securities services and payments and cash management. Balance sheet management revenues were also ahead of the first quarter of 2007 as the business had positioned itself for falling US interest rates.
"Many parts of the world continue to enjoy strong economic growth. In particular, emerging market economies remain relatively robust, with infrastructure spending growing and demand for energy, minerals and steel rising accordingly," said chairman Stephen Green.
"However, it seems increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain. The timing of any recovery in the US housing market, which is likely to be the primary stimulus in restoring confidence to the US economy, is also unclear," he added.
