HSBC posted first-quarter pre-tax profit of $9.37 billion on Tuesday, missing analyst estimates of $9.59 billion as credit losses and impairment charges climbed well above expectations, with the bank pointing directly to the Middle East conflict as a contributing factor.
Shares in Hong Kong dropped 4.6% after the results were published. U.K.-listed shares fell 5.2% shortly after London trading opened.
Expected credit losses of $1.3 billion were $400 million higher than the same period a year ago and came in 9% worse than consensus estimates, according to a Citi report. HSBC said those losses were linked to exposure to a financial sponsor in the United Kingdom and to provisions set aside because of increased uncertainty and a deteriorating economic outlook tied to the conflict in the Middle East.
"I feel quite comfortable that at a $1.3 billion charge based on what we know today and the forward outlook we have of various downside plausible scenarios, we are well provided for," HSBC Chief Financial Officer Pam Kaur told CNBC on Tuesday.
Revenue told a different story. The bank's top line came in at $18.62 billion, beating the $18.49 billion consensus, with stronger wealth fees and other income driving the outperformance. Net interest income rose 8% year-on-year to $8.9 billion. Operating expenses also rose 8%, driven by inflation, foreign exchange impacts, higher planned spending, and performance-related pay.
HSBC maintained its target return on tangible equity of 17%, with the annualized figure for the reported quarter sitting at 18.7% excluding notable items. But the bank warned that if the Middle East situation worsens, bringing higher oil prices, sharper inflation, and a significant GDP slowdown, profit before tax could take a "mid-to-high single digit percentage" hit. That would push its RoTE below the 17% target. Citi noted the current buffer above that threshold means the forecast is not yet a major concern.
On costs, HSBC said it remains on track to deliver $1.5 billion in annualized cost reductions by the end of June 2026. The bank also completed the privatization of Hang Seng Bank on January 26, delisting it from the Hong Kong Stock Exchange. HSBC said it expects to realize $500 million in pre-tax revenue and cost synergies across both brands in Hong Kong by the end of 2028.
The board declared a first interim dividend for 2026 of 10 cents per share.
Profit before tax fell 1% year-on-year, but the revenue beat and the maintained RoTE target suggest the bank views the credit loss spike as manageable under current conditions. Whether those conditions hold depends heavily on how the conflict in the Middle East develops in the coming months.
