HSBC reported a 95% jump in year-on-year, pre-tax profit to $8.4bn for the first quarter of 2013. Losses from bad debts fell to $1.2bn, the lowest quarterly figure since before the financial crisis. HSBC is shaking off the legacy of its investment in a US subprime lending business. Operating expenses declined by an annual 10%. The bank is now saving $4bn a year on an annualised basis.
What the commentators said
HSBC is looking “decidedly chipper”, said James Moore in The Independent. Costs and bad debts are down, revenues are up and “even the dour chief executive Stuart Gulliver [said he] sees calmer waters ahead”. HSBC’s emerging-market exposure – Asia generated two-thirds of profits – helps bolster results in a generally “sluggish” world economy, noted Chirantan Barua of Sanford Bernstein. With ample capital on hand, it could increase its dividend by at least 30% this year.
The outlook, however, is not especially inspiring. As Peter Thal Larsen pointed out on Breakingviews.com, HSBC has around $3 in loans for every $4 of customer deposits. That makes it especially vulnerable to the low interest-rate environment induced by quantitative easing. Low rates squeeze the margin between what it has to pay to attract deposits and what it can charge on loans.
With the global macro-environment set to remain tepid for now, HSBC’s performance will depend on its ability to keep cutting costs. But it has been shrinking expenses for two years already. The question in this context is “how many more strings HSBC has to pull”.