HSBC rules out banking crisis as profits triple after Silicon Valley Bank deal

Failure of four banks in six weeks is purely a sign of poor risk management, says chief executive

HSBC’s chief executive has denied the possibility of a fresh banking crisis, saying the failure of four banks in six weeks was a merely a sign of poor risk management, as the lender tripled its own first quarter profits to $13bn (£10bn) after its rescue of Silicon Valley Bank UK.

Noel Quinn’s comments came a day after JP Morgan stepped in to buy most of the collapsed lender First Republic in a $10.6bn takeover, as part of regulators’ efforts to draw a line under lingering turmoil across the banking sector.

“We’re pleased that there was a resolution on First Republic at the weekend so that that situation has been resolved,” Quinn told journalists during a conference call on Tuesday.

“We do not believe that there is a global banking crisis on the horizon. We think there are some challenges that have been evidenced in some of the regional banks in the US, but we do not believe that’s systemic in the US, or across all banks.”

First Republic – which focuses on high net worth clients – is the fourth global bank to collapse since early March, after the failures of Silicon Valley Bank, the New York-headquartered lender Signature Bank and Switzerland’s second-largest bank, Credit Suisse.

The HSBC boss said recent failures were the result of banks taking greater risks to increase their profits. “It’s all about having a balanced risk appetite and return aspirations. And I think normally when one gets out of sync with the other, and the pursuit is: ‘profit at the expense of a managed risk appetite’, that’s normally when challenges emerge. And therefore that’s the probably the lesson on SVB or some of the regional banks in the US.”

HSBC bosses applauded their own bank’s performance, after reporting that profits had tripled to $12.9bn in the first three months of the year, compared with $4.2bn a year earlier.

The bank benefited from higher interest rates – which allow lenders to charge more for loans and mortgages – as well as the reversal of plans to write off $2.1bn linked to the now-uncertain sale of its French business.

But profits were increased by about $1.5bn thanks to the rescue of SVB UK in early March, which cost the bank just £1.

The chief executive confirmed that SVB UK staff pay would be affected by the bank’s failure, after controversy over bonus payouts made to staff a day after the takeover. However, Quinn said he wanted to make sure SVB UK employees had “good earnings potential going forward”.

“We’re supportive of them as a business and we want them to have strong, long-term careers with HSBC,” he said.

The strong results meant HSBC was able to announce its first quarterly dividend since before the Covid outbreak, as well as plans for a $2bn share buyback. “If you take one thing away from today’s result, it is our strategy is delivering on our promises,” Quinn said.

The move is part of efforts to appease shareholders – including its largest investor, Ping An – who are calling for a spin-off of its more profitable Asian business, and are holding a vote on the matter at HSBC’s annual general meeting in Birmingham on Friday.

HSBC is urging shareholders to vote against the break-up proposal. “We didn’t think pursuing radical structural options was the best and safest way to improve returns – we believe the current strategy was,” Quinn said. “And therefore, I think we’re very much focused, going forward, on just continuing to drive strong performance, and that’s the best way to deliver returns for all of our shareholders.”

HSBC shares rose nearly 6% on Tuesday morning, making it one of the top risers on the FTSE 100.


Kalyeena Makortoff Banking correspondent

The GuardianTramp

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