HSBC has reported first-quarter profits that fell short of expectations after taking a $1.3 billion hit on bad debts, including a fraud-related charge in the UK and the impact of the Middle East conflict.
Profit Decline and Provisions
The UK-based lender posted pre-tax profits of $9.4 billion (£6.96 billion) for the first quarter, down slightly from $9.5 billion (£7 billion) a year earlier and below analyst forecasts. The decline was driven by an unexpected $400 million (£295 million) loss linked to a fraud case in the UK, related to loans made to a private equity firm that had exposure to a private-credit firm in its corporate and institutional banking division. HSBC did not disclose the companies involved.
The bank also set aside $300 million (£222 million) due to heightened uncertainty and a worsening economic outlook related to the Iran war. Overall, expected credit loss charges rose 50% year-on-year to $1.3 billion (£960 million), which also included an impact from higher trade tariffs.
Revenue Growth and Market Reaction
Despite the profit miss, HSBC's revenues increased 6% year-on-year to $18.6 billion (£13.7 billion), driven by strong performance in wealth management and its Hong Kong business segment. However, shares fell 5% in morning trading on Tuesday.
Chief executive Georges Elhedery commented: "We continued to make positive progress in creating a simple, more agile, growing HSBC. Each of our four businesses contributed to firm-wide revenue growth." He added: "In periods of greater uncertainty, customers turn to us more as their trusted partner to navigate complexity with the financial strength, stability and expertise they know they can rely on. We remain confident in achieving the targets we set out in February 2026."
Private Credit Concerns and Broader Context
The fraud provision comes amid increasing regulatory concerns surrounding the private credit market as a source of financial risk in the UK and globally, given the sector's complexity. HSBC said its exposure to the private-credit market was small relative to its overall balance sheet. Fellow UK bank Barclays last week announced an £823 million provision for bad debts, largely driven by a £228 million impairment charge related to the collapse of UK property lender Market Financial Solutions earlier this year amid fraud allegations.
Banks across the sector have booked charges due to a worsening economic outlook as the Iran war has led to downgrades for the UK. Major players such as Lloyds Banking Group have increased credit charges because of a more cautious outlook.
Cost-Cutting Progress
HSBC said it continues to slash costs across the group and is on track to meet its target of $1.5 billion (£1.1 billion) in annual savings by June, six months ahead of schedule. It has trimmed $1.4 billion (£1.03 billion) in costs to date under the programme.
Chris Beauchamp, chief market analyst at IG, said: "HSBC’s results always bring more of an international flavour than its UK peers. Unfortunately that means the Hormuz crisis looms large in the results, casting a shadow over an otherwise solid set of numbers. The theme is grimly familiar to investors; were it not for the crisis, earnings outlooks would be much rosier. The warnings around the economic impact will only continue to grow the longer the situation remains unresolved."
