- Decline in net interest margins and jump in bad loan losses no worse than expected
- Absence of one-off gains from a year ago hurts profit comparison
- Unchanged dividend but new $3 billion buyback announced
- Shares up by a fifth from their post-Liberation Day low
“HSBC’s shares have already rebounded smartly from their post-Liberation Day lows of early April and a solid set of first-quarter results is helping them to extend their advance, thanks in part to a new $3 billion share buyback programme,” says AJ Bell investment director Russ Mould.
“Profits fell compared to the first three months of a year ago, but the absence of capital gains on asset disposals was the major reason why, and the underlying performance was solid enough, given the uncertainties created by President Trump’s tariff and trade strategies for what is essentially an Asia-focused bank that generates the bulk of its profits in China and Hong Kong.
“HSBC’s unchanged quarterly dividend of $0.10 equates to a cash distribution to shareholders of $1.77 billion, and the first quarter buyback of $2 billion supplements that. HSBC is now rolling out a $3 billion buyback for the second quarter and for the year as a whole analysts believe that the megabank’s total cash return to shareholders will reach £17.5 billion.
“This combination of dividends and buybacks equates to more than 12% of the bank’s stock market capitalisation, the highest figure among any of the Big Five FTSE 100 lenders. It is also one that may catch the eye of income seekers, given how it comfortably outpaces not just inflation but the returns available on cash and benchmark UK government gilts.
Source: LSEG Refinitiv data, Marketscreener, analysts’ consensus forecasts
“These distributions can only be made safely, however, if there are the profits and cash flow available to back them up, and this is why HSBC’s first-quarter numbers may help to reassure. If earnings shrivel, the buybacks could be quickly reduced or cut altogether, as happened at many firms during the Covid-19 shock of 2020-21, and shareholders will remain on the alert for the possible knock-on effects of President Trump’s trade and tariff assault upon the global economy and earnings of industries that are sensitive to it – such as banks.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“HSBC’s first-quarter pre-tax profits were lower than those of the same period in 2024, at $9.5 billion against $12.7 billion. However, $3.7 billion in net gains on disposal of assets, notably the Argentinian operation, flattered the first quarter of 2024 and the comparison looks more favourable once those one-off gains are excluded.
Source: Company accounts
“Strong fee income and higher profits, from the International Wealth and Premier Banking and Corporate and Institutional Banking segments, support the first-quarter results as they help to compensate for lower interest income and a modest increase in provisions for bad loans.
Source: Company accounts
“The bad loan provision figure of $876 million compared to $720 million a year ago, but at 0.37% of the loan book it lay within management’s guidance for 2025 overall of a bad loan ratio of 0.30% to 0.40%.
Source: Company accounts
“Any major global slowdown could yet take its toll here, though, and this will remain one of the most scrutinised figures at HSBC (and the other four FTSE 100 banks) as this year wears on. The first quarter ended before Liberation Day, even if Trump had already stuck tariffs on cars, aluminium and steel and singled out China for specific additional duties.
“A resolution to trade tensions between Beijing and Washington could be very helpful for sentiment toward HSBC shares and remove a potential obstacle to management’s return on equity targets for 2026 and 2027 – targets that were raised alongside the full-year results in February.
“A mid-teens return on equity for 2025 to 2027 would help to justify a valuation of more than one times historic net asset, or book, value for the shares. HSBC already trades on 1.2 times historic book value of $9.05, so the risk is that earnings disappoint and the shares derate, sliding back below the one times NAV threshold which has proved a cap for most of the past 16 years in the wake of the Great Financial Crisis of 2007 to 2009.”
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
