HSBC Q1 earnings miss on higher credit losses

HSBC Holdings reported a first-quarter pre-tax profit of USD9.4 billion on Tuesday, falling short of analyst expectations as the bank grappled with unexpected credit charges linked to a U.K. fraud case and rising geopolitical risks.

While the London-based lender posted a solid performance across its core businesses, the bottom line fell short of the $9.59 billion forecast by analysts, according to data from CNBC and Bloomberg.

Net profit for the quarter reached $6.94 billion, marking a marginal 0.1% increase compared with the same period last year, but trailing consensus projections of $7.02 billion.

The primary drag on performance for HSBC was a $1.3 billion charge for expected credit losses (ECL), which rose $400 million compared with the first quarter of 2025.

HSBC attributed $400 million of this figure to a “fraud-related, secondary securitization exposure” involving a financial sponsor in the U.K. HSBC also set aside $300 million to account for the economic fallout from the conflict in the Middle East, which began in late February.

As indicated in reports from Bloomberg and The Wall Street Journal, the provision of $400 million is tied to the collapse of Market Financial Solutions (MFS), a London-based lender specializing in short-term property loans.

Despite the credit charges, CFO Pam Kaur characterized the loss as a one-time event and said a portfolio-wide review had turned up no similar concerns. “We regard this charge as idiosyncratic,” Kaur said in the Wall Street Journal, “We have completed a review of the highest areas of risk in our portfolio and haven’t identified any comparable fraud concerns.”

Accompanying the first-quarter results, Group CEO Georges Elhedery emphasized the bank’s underlying strength. He noted that all four of its business segments contributed to revenue growth and delivered an annualized return on average tangible equity (RoTE) in excess of 17%, excluding notable items.

“We continued to make positive progress in creating a simple, more agile, growing HSBC,” Elhedery said in a statement, adding, “We remain confident in achieving the targets we set out in February 2026.”

Revenue for the quarter increased 6% year-over-year to $18.6 billion, supported by activity in wealth management and higher banking net interest income (NII). “The increase primarily reflected strong growth in Wealth fees and other income in our International Wealth and Premier Banking (‘IWPB’) and Hong Kong business segments, supported by higher customer activity,” HSBC wrote.

NII of $8.9 billion increased by $0.6 billion, or 8%, compared with 1Q25, including an adverse $0.1 billion one-off item in 1Q26. Banking NII reached $11.3 billion in 1Q26, an increase of $700 million, supported by “deposit growth and favorable reinvestment rates on its structural hedge.”

Outlook and targets

Looking ahead, the bank has updated its 2026 guidance to account for a volatile macroeconomic environment. HSBC now anticipates banking NII of approximately $46 billion, up from its previous projection of at least $45 billion.

However, it also raised its forecast for ECL charges, now expecting them to hover around 45 basis points of average gross loans for the year, up from the previously anticipated 40 basis points.

As of the end of the quarter, the bank’s Common Equity Tier 1 (CET1) capital ratio stood at 14.0%, within its medium-term target range of 14% to 14.5%.

HSBC also maintains its commitment to its broader financial targets, including a RoTE of 17% or better for 2026 through 2028.

HSBC’s board also approved a first interim dividend for 2026 of $0.10 per share.