HONG KONG (Reuters) -HSBC Holdings' profit tripled in the first quarter, beating expectations, as rising interest rates boosted its income and helped the lender pay its first quarterly dividend since 2019.
The strong results reported by HSBC and Asian rival DBS on Tuesday underscore how aggressive policy tightening has lifted profit margins, even though it has also sparked banking sector turmoil in the U.S. and other markets. On Monday, regulators seized First Republic Bank (NYSE:FRC) and sold its assets to JPMorgan Chase & Co (NYSE:JPM), in a deal to resolve the largest U.S. bank failure since the 2008 financial crisis and draw a line under the bank sector jitters.
With the rate cycle nearing a peak, the challenge for the likes of HSBC, Europe's largest bank, will be to sustain its margins this year and beyond.
CEO Noel Quinn said the results showed HSBC's strengths in a rising rate environment, and played down the risks of further contagion for the banking sector.
"We do not believe there is a global banking crisis on the horizon. We do not see a negative impact on our business" as a consequence of First Republic Bank's rescue, Quinn told a conference call.
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.
The bank's shares rose as high as 6% in London, the second best performer on the day in the benchmark FTSE index.
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.
The bank said the planned $10 billion sale, originally slated to be completed by the end of this year, will now only likely go through in the first quarter of 2024.
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, 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 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.