HSBC profit falls 28% on Ukraine war & warns on buyback outlook

The bank posted pre-tax profits of $4.2bn for the three months to March, still better than expectations of $3.7bn, with revenue down 4% to $12.5bn.

Earnings were also hit by surging Covid-19 cases in Hong Kong, HSBC’s largest market, which led to reduced share trading, bank branch closures and a slowdown at its China wealth management division.

“The Russia-Ukraine war continues to have devastating consequences both within Ukraine and beyond,” said chief executive Noel Quinn, noting that conflict had “exacerbated inflationary pressures, and increased uncertainty on the forward economic outlook”.

“HSBC Russia is not accepting new business or customers and is consequently on a declining trend.”

The bank said its revenue outlook “remains positive”, with growth in net interest income expected to continue as implied market consensus policy rate movements have improved since its 2021 results.

“This is expected to be supported by mid-single-digit percentage lending growth for 2022,” it added.

“While Covid-19-related restrictions in Hong Kong resulted in a comparatively muted first quarter for our wealth business, we expect a recovery when restrictions are lifted.”

HSBC said it would stick to a planned share buyback of up to $1bn but that further share purchases were unlikely in 2022. It said volatility in equity from financial instruments held for hedging could cause its key capital ratio to drop below its target.

The common equity tier 1 capital ratio dipped 1.7 percentage point to 14.1% in the first quarter. HSBC said the planned disposal of its French retail banking business would also reduce the ratio in the second half.

"Overall, the group has been hampered by and inevitably subject to wider geopolitical and economic pressures. Given the sheer size and scale of the bank, the old market adage that elephants don’t gallop is reflective of the measured but uninspiring progress," said Interactive Investor head of markets Richard Hunter.

"Even so, the numbers follow a strong performance of late, with the share price having risen by 20% over the last year, as compared to a gain of 6% for the wider FTSE100. With the interest rate environment playing into the hands of the banks, the market consensus for prospects remains positive, with the general view being that HSBC remains a buy for the longer term.”