Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown comments;
HSBC swallowed a bitter pill by setting aside $3 billion for bad loans provisions last year, but now the pandemic headache is easing it’s releasing £400 million of that cash. The improved economic outlook, thanks to rapid vaccine rolls outs, helped by the crutch of government emergency support, is welcome relief for the bank, helping push up profits by 79%.
Pre-tax profits came in at $5.78 billion, up from $3.21 billion a year ago. HSBC UK was singled out for a particularly strong recovery with pre-tax profits of over $1 billion for the quarter, with expected credit losses staging a disappearing act, as a strong economic bounce back appears on the cards. Demand for mortgages in the UK as the house price boom continues was one of the drivers which helped push up lending over the quarter by $2 billion.
But there doesn’t look like there is an immediate cure for the bank’s underlying ailment, the ultra-low rates plaguing the banking sector. HSBC is not alone in feeling the squeeze of net interest margins, which tightened again slightly over the quarter, but other banks with huge investment banking arms have been able to capitalise on the trading surge over the past year.
It’s planning further expansion for its investment banking business, to try and sniff out 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. Nonetheless the bank notes 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.’