HSBC upbeat on Asia but expects 'little bit of crash' in Brazil

May 07, 2014 19:29
HSBC says profit before tax fell 20 percent in the first quarter to US$6.79 billion from a year earlier. Photo: Bloomberg

HSBC Holdings Plc (00005.HK), Europe's biggest bank, said Wednesday it is bullish on revenue from its Asian market this year, while the other regions are expected to remain stable.

However, the global bank anticipates some pressure in Latin America, especially in Brazil, where there may be "a little bit of crash" amid rising interest rates, group chief executive Stuart Gulliver told reporters.

On Feb. 26, Brazil's central bank raised its benchmark interest rate to 10.75 percent from 10.5 percent, while leaving the door open for further hikes in the future, although at a slower pace, according to the Wall Street Journal.

Gulliver also said the bank's global banking and markets (GBM) business is expected to “perform weaker in the second quarter than the first quarter". GBM profit for the first three months of the year fell 20 percent from a year ago, but the bank has won market share in several areas, including equity and debt capital markets and advisory.

GBM profit before tax was US$2.87 billion in the first quarter, up from US$1.87 billion at the end of last year, while its risk-weighted assets rose to US$553.5 billion from US$422.3 billion at end-December, HSBC said in a regulatory filing on Wednesday.

Meanwhile, the bank sees no sign of its net interest margin (NIM) widening this year amid lower yields on customer lending while reverse repurchase agreements and repurchase agreements are rising.

The lender saw NIM shrinking in the first quarter from a year earlier as a result of lower yields on customer lending, primarily in North America and Latin America, because of a change in the composition of its lending portfolios as the bank focused on growing secured, lower-yielding balances for both corporate and premier customers.

Yields on customer lending also fell in Europe and Asia. However, yields on the bank’s surplus liquidity increased, notably in Asia, in line with market rate rises in mainland China and active management of portfolios, the bank said.

Profit before tax in the first quarter fell 20 percent year on year to US$6.79 billion. Common equity tier 1 capital ratio was at 10.7 percent as of end-March, edging down 0.1 percentage point from end-December, while tier-1 ratio was at 11.9 percent, down from 12 percent in December.

Separately, group finance director Iain Mackay said the bank's restructuring is almost complete and is expected to result in further cost savings.

-- Contact the reporter at [email protected]



Ayishah Ma is a financial reporter on Greater China issues.