(May 5): HSBC Holdings plc reported profit that missed estimates, weighed down by an unexpected charge related to the collapse of UK mortgage lender Market Financial Solutions Ltd and rising economic risks stemming from the conflict in the Middle East.
Pre-tax profit for the first three months of the year fell to US$9.4 billion ($12.0 billion), missing the US$9.6 billion average estimate compiled by the bank. Those results were partially offset by a resilient performance within the lender’s wealth and Hong Kong units, as well as an upgrade to its net interest income (NII) outlook.
The London-based bank booked US$1.3 billion in expected credit losses (ECL) for the period. This figure was driven largely by a US$400 million charge linked to what the bank described as a “fraud-related, secondary, securitisation exposure with a financial sponsor in the UK”.
That’s tied to the failure of specialised lender Market Financial Solutions, also known as MFS, according to a person with knowledge of the matter, who asked not to be identified discussing private information. Apollo Global Management Inc’s unit Atlas SP Partners is the financial sponsor, the Financial Times reported, citing people familiar with the matter that it didn’t identify.
HSBC also recorded a US$300 million increase in allowances tied to a deteriorating global economic outlook following the onset of hostilities in the Middle East.
The “results contained a fair amount of noise across revenue and cost lines, but the underlying picture is one of a mildly stronger banking NII print and ongoing strength in wealth”, Joseph Dickerson and Priya Rathod, analysts at Jefferies, said in a note. They rate the shares a hold.
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HSBC’s shares were down 6.25% at 10.03am in London on Tuesday. The lender’s exposure to the MFS saga underlines how intertwined banking has become with private credit and non-banks, with firms including Barclays plc and Banco Santander SA also caught out.
The broadening scope of the conflict in Iran is also threatening a region that HSBC had targeted for aggressive wealth and corporate banking expansion, though the bank hasn’t operated in Iran for more than a decade. It joins several European banks, which have collectively sidelined hundreds of millions of euros to buffer against the regional instability. The heightened allowances underscore the shifting risk profile for global lenders as geopolitical tensions threaten to disrupt key growth markets.
HSBC also said it expects 2026 ECL charges to be about 45 basis points of average gross loans, from its previous estimate of around 40 basis points.
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The wild swings in prices of assets ranging from bonds to currencies and commodities have had a varying impact on bank earnings this season. Stock traders at Barclays plc have beat expectations, while fixed-income and foreign exchange short, broadly similar to their peers at Goldman Sachs Group Inc. On the other hand, JPMorgan Chase & Co notched its highest-ever quarterly trading revenue, with both equities and FICC — fixed income, currencies, and commodities — beating estimates.
Last week, Standard Chartered plc took a US$296 million credit impairment charge, of which US$190 million related to what the Asia and Middle East-focused lender said was “precautionary management overlays” tied to the Gulf region.
The Iran war has battered the region’s economies and caused disruptions to global supply chains. As the world’s largest trade bank and a key financial pipeline connecting the East with the West, HSBC is sensitive to the geopolitical ructions resulting from the hostilities.
HSBC has been on a major restructuring drive for the past 18 months ever since Elhedery took over as the chief executive officer in September 2024. The Lebanon-born banker has shut down, merged and sold several businesses in an effort to simplify the bank’s business and reduce costs. Oversea-Chinese Banking Corp (OCBC) said on late Monday that it’s buying HSBC’s retail and wealth assets in Indonesia.
The transformation of HSBC has been welcomed by investors, with the shares hitting all-time highs this year. The outbreak of the US-Iran war caused the stock to plunge briefly before it pared most of those losses.
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