By Jack Denton
Profits before tax at HSBC jumped 79% in the first quarter of 2021, as an improved economic outlook allowed the global banking giant to release $400 million in reserves it had kept aside for expected credit losses.
Shares in HSBC /zigman2/quotes/203901799/delayed UK:HSBA +0.58% rose more than 4% in London trading, as the group said it logged $5.8 billion in pretax profits in the first three months of 2021, while adjusted profits before tax of $6.4 billion crushed analyst expectations of $4.3 billion. Revenues of $13 billion also handily outpaced the consensus forecast of $12.6 billion.
The strong results were helped along by the cancellation of $400 million kept in reserve for potential loan losses, the bank said, reflecting an improvement in the economic outlook from 2020. In the first quarter of last year, the bank took a $3 billion charge from loan losses.
“The improved economic outlook, thanks to rapid [COVID-19] vaccine rollouts, helped by the crutch of government emergency support, is welcome relief for the bank, helping push up profits by 79%,” said Susannah Streeter, an analyst at Hargreaves Lansdown.
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“But there doesn’t look like there is an immediate cure for the bank’s underlying ailment, the ultra-low rates plaguing the banking sector,” Streeter added. “HSBC is not alone in feeling the squeeze of net interest margins, which tightened again slightly over the quarter, but other banks with huge investment banking arms have been able to capitalize on the trading surge over the past year.”
HSBC’s results added buoyancy to the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.94% , the index of London’s top stocks by market capitalization, on an otherwise mixed day of trading. The index was 0.46% lower.
“We’re now in a very busy week for companies updating on earnings and trading in the U.K. and U.S., which means investors are likely to be rearranging their portfolios in reaction to the news,” said Russ Mould, an analyst at AJ Bell. “This could result in heightened trading volumes and mean markets are principally driven this week by company fundamentals rather than politics and macroeconomics.”
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Stocks making big moves on Tuesday were largely influenced by earnings-related news.
Shares in BP /zigman2/quotes/202286639/delayed UK:BP +3.16% rose near 2%, before settling below flat, as the oil major committed to rewarding investors with a $500 million share buyback program after meeting debt-reduction targets and more than tripling profits from the same period last year. Underlying net profit on a replacement cost basis — the profitability measure used by the company and watched by analysts — was $2.6 billion, smashing the $1.5 billion analyst consensus and representing a surge from $791 million in the year prior.
Aveva /zigman2/quotes/202038414/delayed UK:AVV +0.56% was the biggest faller in London’s key index, with the shares down near 5.5%. The industrial software group said that its chief executive decided to quit after three years, and that an executive from Aveva’s largest shareholder, Schneider Electric /zigman2/quotes/200216351/delayed FR:SU -0.22% , will be seconded to succeed him effective May 1. Also issuing a trading update for the full year ending March 31, Aveva reported flat year-over-year revenue growth.
Hotel and restaurant group Whitbread /zigman2/quotes/207954631/delayed UK:WTB +1.34% wasn’t far behind Aveva, with the stock down near 3.5%, after the company posted a pretax loss of £1 billion ($1.4 billion) in the full year to February 25. Whitbread said that the loss reflected significant COVID-19 restrictions in place all year in the U.K. and Germany. Revenues came in slightly below analyst expectations.