HSBC has blamed turmoil in global markets for a drop of nearly a fifth in its profits for the first three months of the year.
Adjusted pre-tax profits fell by $1.16 billion, or 18 per cent, year-on-year for the first quarter to $5.4 billion, a better result than many City analysts had been expecting and allowing HSBC to say that it would not be cutting its dividend.
Investment banking businesses such as foreign exchange, equities and credit trading took some of the biggest hits to their bottom lines and overall HSBC reported a 4 per cent drop in revenues to $13.9 billion.
Stuart Gulliver, 57, chief executive, said that the scale of the first-quarter profit drop was down to what he described as “tough market conditions” and a strength of the bank’s earnings in the same period last year that meant it was always going to be an uphill task to match the performance.
“Market uncertainty led to extreme levels of volatility in January and February, which affected our ability to generate revenue in our markets and wealth management businesses,” Mr Gulliver said.
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Despite the fall in profits, HSBC said that there would be no cut to its payouts to shareholders and declared a ten cents-a-share dividend for the quarter, the same amount that it paid out for the period last year.
Ian Gordon, an Investec analyst, said that the results were a “positive relief” and pointed to the unchanged dividend. “Although we still forecast that the 2016 dividend will be uncovered, we continue to regard it as sustainable, given a combination of capital strength and non-existent loan growth,” he said.
A particular concern at HSBC has been its ability to get a grip on its cost base, and Mr Gulliver insisted that the planned reductions in spending were going according to plan. “We are confident of hitting our cost target by the end of 2017,” he said.
He also hit back at assertions that the pattern at the beginning of the year suggested that the dividend was under pressure. “We’ve had two difficult months in January and February and two OK months in March and April, so it is not a trend yet,” he said.
Chirantan Barua, a Sanford Bernstein analyst, said that the dividend ultimately would prove “untenable”.
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“The bank has been cutting costs for more than five years now,” he said. “There isn’t much they can do incremental to current plans in the near term. Such an earnings environment and the fact that they still haven’t touched the regulatory capital requirements makes a progressive dividend untenable.”
Iain Mackay, HSBC’s finance director, said: “We need a fairly significant downward pressure on our earnings or a significant upward pressure on our regulatory capital requirements to affect our ability to meet our dividend commitment.”
Helping the bank’s performance was a drop in litigation charges and customer compensation.
The shares fell by 7½p to 445p.
