(ATF) HSBC's focus on Asia - particularly China's growing cohort of the very rich - and an aggressive divestment and cost-cutting programme appear to have paid off for the bank as it posted strong profit growth.
The banking group's first-quarter net profit surged 79%, driven by an improving global economic outlook a year after the outbreak of coronavirus, allowing it to cancel hundreds of millions of dollars in reserves set aside for potential loan losses.
HSBC’s results were strong in Asia, particularly in wealth and asset management, which recorded a collective $24 billion in net client money in the quarter.
The investment bank also reported a surge in trading and advisory revenues, matching the trends seen earlier this month on Wall Street.
"Asia continues to be the main driver of HSBC’s profits, also benefitting from the cross-border activity of the group’s clients in the rest of the world, generating around 59% of group pre-tax profits," Moody's analyst Edoardo Calandro said.
"We expect HSBC’s profitability to improve in 2021 from 2020, assuming continued positive developments in terms of the pandemic,” he added.
London-listed HSBC Holdings shares jumped 4% after it beat quarterly profit forecasts and released $400 million in provisions it had set aside to cover bad loans caused by the pandemic. The broader banks index added about 2.4%.
“HSBC is not only releasing some of these provisions, but it is also toasting good trading in various parts of its business," Russ Mould, investment director at AJ Bell in London, said.
“These factors will put pressure on the business to be generous with dividends, yet HSBC remains cautious while the pandemic rages on and won’t decide on when next to pay cash to shareholders until August."
HSBC is planning further expansion for its investment banking business, seeking higher returns by moving capital investment and staff from Europe and the US to Asia.
"As part of the refocus it’s still attempting to extricate itself from the struggling French retail banking arm, and is still deep in negotiations," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London, said.
Nonetheless, the bank said that the outlook remains highly uncertain. "HSBC’s resilience could be tested as governments remove the arms of support that have been wrapped around their economies to help them limp through the crisis,’’ Streeter added.