HSBC Holdings said underlying profits in the first three months of this year were well ahead of a year ago as bad debts fell to their lowest level for over two years, led by a drop in the United States. Europe's biggest bank said an improvement in impairments returned its troubled U.S. business to profit for the first time since the financial crisis began in 2007, cheering investors who were worried the revival could take longer.
By 0943 GMT HSBC's shares were up 3.7 percent to 652.1 pence, outperforming a 1.4 percent fall by the European bank index amid jitters about the sector's exposure to Greek debt.
HSBC Finance Director Douglas Flint said HSBC had 1.5 billion euros ($2 billion) of Greek sovereign debt, and was comfortable with its exposure.
"HSBC made its first profit since 2007 in the United States, and lower impairment charges and consumer credit quality improved," says Jawaid Afsar, a trader at Securequity.
"Shares have bounced and the bank is without doubt the best and re-rating is likely to take place."
HSBC, which does not report full quarterly results, said its underlying first-quarter profit was "comfortably ahead" of both a year ago and the fourth quarter. Its reported pretax profits would be lower than a year ago, however, as last year's figure included a $6.2 billion technical accounting gain.
The bank had a strong first half of 2009, but lost momentum in the next six months, and analysts were encouraged that momentum had returned.
Profits are expected to rebound to $16.4 billion this year, according to a poll of 20 analysts by Thomson Reuters, after dropping to $7.1 billion in 2009.
Analysts predict bad debts should drop to under $20 billion this year -- from $26.5 billion last year.
"If you look at what was achieved in the first quarter particularly in (HSBC Finance), the main driver, you can see why people would have estimates in that range," Flint told reporters on a conference call.
Massive losses in the United States in the last three years stem from its purchase of U.S. consumer finance company Household in 2003 -- a deal the bank now says it regrets -- and bad debts there fell to $2.3 billion in the first quarter from $3.9 billion a year ago and $3.2 billion in the fourth quarter.
Profits at global banking and markets (GBM) were ahead of a strong quarter a year ago, as a drop in bad debts and trading businesses performed well, with a strong increase in income from credit, the bank said.
