By Steve Goldstein
HSBC takes loss over U.K. firm and Middle East turmoil
HSBC took $1.3 billion of credit impairments in the first quarter.
Bank earnings are as much an art as a science, and to estimate loan-loss provisions a firm has to come up with a worst-case scenario and work backwards from there.
On a conference call with analysts to explain the bank's first-quarter earnings and, in particular, higher loan-loss provisions than expected, chief financial officer Pam Kaur explained just how dark - stock markets down 35% and oil at $145.
The S&amp;P 500 SPX, it should be noted, is only 0.4% away from a record high. In the Middle East, where HSBC took a big write-down, Saudi Arabia's all-share index is up 5% this year, and the FTSE Kuwait index is down just 1%.
Oil is closest to HSBC's worst-case scenario, with Brent crude (BRN00) trading around $113.
HSBC reported broadly flat pretax profits excluding one-time items of $10.1 billion, as revenue rose 4% to $19.1 billion. The bank did record a $1.3 billion charge on credit losses, including $400 million from a financial sponsor in the U.K. and $300 million from the Middle East conflict.
Analysts at Citi said the Middle East provision was broadly as anticipated but the U.K. charge was not, and the provision was even higher than when peer Barclays took over MFS, a U.K. lender that collapsed. The identity of the company for which HSBC has provisioned was not disclosed.
&#34;This fraud is an idiosyncratic fraud,&#34; said Kaur, according to a FactSet transcript of its call. &#34;We have gone back and reviewed all our highest risk exposures across our portfolio and we see no comparable fraud risks. Therefore, we feel quite comfortable that this is a one-off fraud. It came to us through a secondary exposure through a financial sponsor.&#34;
HSBC nudged up its forecast for banking net interest income to $46 billion, from &#34;at least&#34; $45 billion, while it also raised its expected credit loss forecast to 45 basis points from 40 basis points.
HSBC shares (UK:HSBA) (HSBC) stumbled 5% in London trade, to reduce its year-to-date gain to 10%.
Digital push
HSBC also said it made a big push into digital assets, including a tokenized gold product that's already seen $1 billion in value traded.
HSBC has Hong Kong's first retail-focused gold token, in a market that is currently led to two crypto-native firms, Tether and Paxos Trust. According to CoinGecko, there was $90.7 billion in tokenized gold trading in the first quarter.
Tokenized gold products are similar to gold-backed exchange-traded funds, though they're traded around the clock, settle nearly instanteously and don't charge annual expenses. However, ETFs have far more liquidity.
HSBC also noted it's planning to launch a Hong Kong-dollar denominated stablecoin in the second half of the year, has launched a tokenized deposit service in five markets and is participating in central bank digital currency projects with eight central banks.
The digital push comes as the bank is exiting several markets to become simpler and as it fully privatized its Hong Kong bank Hang Seng in January.
-Steve Goldstein
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05-05-26 0434ET

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HSBC reported a $1.3 billion charge in credit impairments for Q1, driven by a U.K. firm and Middle East turmoil. CFO Pam Kaur outlined a bleak scenario with stock markets down 35% and oil at $145. Despite a 4% revenue rise to $19.1 billion, shares fell 5% in London. The bank is pushing into digital assets, including a tokenized gold product and plans for a Hong Kong-dollar stablecoin. HSBC raised its banking net interest income forecast to $46 billion and increased expected credit losses to 45 basis points.

- HSBC reported $1.3 billion in credit impairments in the first quarter, primarily due to a write-down related to a U.K. financial sponsor and Middle East turmoil.  
- The bank's pretax profits remained flat at $10.1 billion, with revenue increasing by 4% to $19.1 billion, while its provision for credit losses was higher than analyst expectations.  
- HSBC is also expanding into digital assets, including a tokenized gold product and plans for a Hong Kong-dollar stablecoin, amid ongoing adjustments in its operations.

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HSBC's darkest scenario: stock markets down 35% and oil at $145