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(Sharecast News) - HSBC posted a surprise fall in quarterly earnings on Tuesday, despite a spike in net interest income, after credit impairments rose at Europe's largest lender.
The bank saw revenues rise by an above-forecast 6% in the first quarter to $18.6bn, with net interest income 8% stronger at $8.9bn and an 18% hike in fees in its wealth division, to $2.7bn.
However, pre-tax profits fell to $9.4bn from $9.5bn a year previously, missing forecasts for around $9.6bn, reflecting "higher expected credit losses and other credit impairment charges" in the quarter.
HSBC said expected credit losses had risen by $400m to $1.3bn, including a loss relating to a British fraud case and a $300m increase in allowances "to reflect heightened uncertainty and a deterioration in the forward economic outlook due to the onset of the conflict in the Middle East". It also flagged wider geopolitical tensions and higher trade tariffs.
As at 1145 BST, the blue chip had shed nearly 6% at 1,284.4p.
However, chief executive Georges Elhedery remained upbeat.
He said: "We continued to make positive progress in creating a simple, more agile, growing HSBC. Each of our four businesses contributed to firm-wide revenue growth. In periods of greater uncertainty, customers turn to us more as their trusted partner to navigate financial strength, stability and expertise."
HSBC retained all its financial targets for 2026, including a return on tangible equity of 17% or better. It boosted its NII forecast by $1bn to $46bn, "reflecting an improved interest rate outlook, while recognising the outlook remains volatile and uncertain".
Since taking up the role in September 2024, Elhedery has looked to radically reshape HSBC's global offering by refocusing the business on Asia, its biggest market. He has also sought to slash costs.
Richard Hunter, head of markets at Interactive Investor, said: "Credit impairments have largely blotted the copybook for this quarter, while the lack of a return to the share buyback programme may also provide some disappointment, even though that return may not be far away.
"It remains to be seen whether this quarter turns out to be a blip towards HSBC's aspirations, as could likely be the case."
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "The problem was underlying top-line strength got eaten up before it reached the bottom line. Credit losses were heavier than expected, including a fraud-related charge in the UK and extra caution around the Middle East outlook, while costs also ran above consensus as performance pay, inflation and technology spend bit into profits.
"For investors, this was a typically messy quarter: The core franchise looks healthy, but HSBC still needs to prove it can keep a lid on costs and impairments if the market is going to give full credit for that than stronger revenue base."
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