HSBC (HSBA) reported attributable net income of $4,153 million for the first quarter, up substantially from the year-ago quarter, on lower loss provisions and lower tax expense. We were excited to see that new CEO Stuart Gulliver has elected to release more detailed financial information in the interim statements, which we think will allow deeper analysis of the company's performance. The results are overall in line with our projections.
In many ways, HSBC's results showed that it is continuing to build on its core strengths--its steady traditional banking business, its global reach, and its conservative deposit funding base. Commercial banking performed especially well, with increased lending in Asia and Latin America helping to drive overall loan balances up 4%. As is often the case, HSBC's global footprint helped to smooth results, with faster emerging-market growth balancing lower profits in Europe and a $440 million one-time charge related to insurance sales in the UK. The bank's loan/deposit ratio came in at 78% at a time when many banks continue to struggle to attract adequate deposits, and underscores that HSBC has plenty of room to grow lending. We note also that the bank's core Tier 1 ratio was a hefty 10.7%
In other ways, the release suggested that change may be afoot. Most importantly, the cost/income ratio stayed stubbornly high at 55% on an underlying basis, as staffing costs continued to rise in growing markets in Asia and Latin America. Despite the bank's protestations to the contrary, we're worried that competition may make it impossible for HSBC to meet its cost/income goals. We also noted that the bank took a $78 million charge in North America as it abandoned software projects there, possibly signalling that the business may soon be for sale.
Our commentary on HSBC’s recent Investor Day will be available
shortly.
Erin Davis is an equity analyst with Morningstar.
