LONDON HSBC's (HSBA.L) first-quarter pretax profit fell 20 percent from a year ago to just under $7 billion, as revenue dropped in Brazil and at its investment bank, while last year's earnings were swelled by asset sales.
Europe's biggest bank, which operates across 75 countries, said revenue prospects were decent in Asia but weaker in Latin America, where it has retreated from many markets after a difficult few years.
"Latin America is under a bit of pressure, particularly in Brazil. Overall Asia remains broadly constructive and everywhere else is generally stable," Finance Director Iain Mackay told analysts and reporters on a conference call.
Earnings in Latin America fell to $310 million in the quarter, down a third from a year ago despite a 17 percent drop in losses from bad debts there.
Chief Executive Stuart Gulliver has said he is in the second phase of a turnaround aimed at making his bank less complex, more nimble and efficient and able to deliver better returns and dividends for shareholders.
HSBC's cost-efficiency ratio was 55.7 percent in the first quarter, close to its target of mid-50s, but its return on equity slipped to 11.7 percent, below its target of between 12 and 15 percent.
HSBC's London-listed shares were down 1.4 percent by 6:50 am ET (1050 GMT). Its shares are down 10 percent this year, underperforming a 2 percent rise by European banks as a whole .SX7P.
"There are good bits going on in Asia, but not as good as they once were, and there's revenue stability in Europe, but revenue falls in Latin America and still a bit of a drag from run-off portfolios," said Alex Potter, analyst at Mirabaud Securities in London.
"It's a good company and there's a big yield, but HSBC is one of those stocks for a rainy day and it's not raining that hard at the moment," Potter said.
"NO LET UP" IN COST CUTS
Profits at HSBC's investment banking arm fell by a fifth from a year ago to $2.9 billion, and are expected to drop from that level this quarter due to what the bank said was muted customer activity.
Analysts said that represented a resilient performance, however, as most investment banks have seen a steeper drop in profits after a grim start to the year for bond and interest-rate trading, which HSBC is less reliant on. The bank said it won market share in several areas, including equity and debt capital markets and advisory.
Gulliver said profits at the investment bank - known as GBM or Global Banking and Markets - in the second quarter were likely to be near last year's $2.1 billion "because conditions are tricky for most people and there's a seasonality to our business."
HSBC reported a group pretax profit of $6.8 billion, down from $8.4 billion a year ago but just above the average forecast of $6.6 billion from 13 analysts polled by the company.
Underlying profits, stripping out gains from disposals and movement in the value of its own debt, reached $6.6 billion, down 13 percent from a year ago.
The bank said it made $275 million of sustainable savings in the first quarter, taking annual cost savings in the last three years to more than $5 billion. It is aiming for further cuts of between $2 billion and $3 billion in annual costs.
The bank has axed more than 40,000 jobs and sold or closed 60 businesses to lower costs, but said it added 1,100 jobs in the first quarter, mainly due to beefing up compliance and adding staff where it sees growth potential.
It said underlying operating costs rose by 2 percent from a year ago, partly due to $100 million extra spent on risk and compliance - mainly in Latin America and Asia.
(Editing by Matt Scuffham and David Holmes)