HSBC profits slide on looming inflation default wave

A deterioration in borrowers’ credit worthiness caused by a historic cost of living squeeze prompted Britain’s biggest lender HSBC to set aside millions of pounds to deal with a rise in defaults.

The bank, which sources a large proportion of its profits from China and Asia, banked $600m (£470m) in reserves to cope with a rise in borrowers not paying back debts, it announced today.

This time last year, HSBC released $400m (£313m) from its pool of Covid-related loan loss reserves, lifting its profits.

Pay is failing to keep pace with soaring inflation across rich economies, squeezing borrowers’ room to repay debts.

In the UK, prices are seven per cent higher than they were a year ago, the highest rate of increase in 30 years.

In Europe, inflation is running at the hottest rate since the creation of the euro in 1999, while stateside, prices are up over eight per cent over the last year.

HSBC’s profits slid 31 per cent over the last year to $4.17bn (£3.3bn) from $5.8bn (£4.5bn), although they came in higher than the City’s expectations.

However, better than expected first quarter results was not enough to prevent HSBC’s shares stumbling 3.52 per cent.

The bank, which has an enormous presence in China, warned that Beijing’s “lockdown restrictions in major Chinese cities have impacted China’s economy, Asia tourism and global supply chains adversely”.

The growing prospect of more lockdowns hitting other parts of the country sparked a global equity sell off yesterday.

A ramping up in sanctions against Russia in response to its invasion of Ukraine “could generate additional losses which are not currently provided for in the balance sheet,” HSBC warned.

“We are supporting our colleagues in the region while implementing the sanctions put in place by the UK and other governments. HSBC Russia is not accepting new business or customers and is consequently on a declining trend,” HSBC chief executive Noel Quinn said.

HSBC is the first of the UK’s high street banks to report first quarter earnings.

Lloyds, Britain’s top mortgage lender, updates markets tomorrow, while Barclays posts first quarter results on Thursday.

Now privately owned NatWest rounds off UK banks’ earnings season on Friday.

UBS notches best profits in 15 years

A surge in trading activity lifted Swiss lender UBS’ profits to the highest level in a decade and a half, it announced today.

The Zurich-based bank said profits for the first three months of the year hit $2.1bn (£1.7bn) off the back of a strong performance in its investment banking arm.

The robust earnings print puts UBS back on track to hit an upgrade to its profit target.

Analysts had expected net income to come in at $1.8bn (£1.4bn).

Pre-tax profits in UBS’s investment banking division more than doubled as strong participation in the global stock markets offset a slow down in deal making and listing activity.