Vancouver-based HSBC Bank Canada saw profits that were more or less flat in the first quarter, as gains in fee income and a reduction in loan loss provisions largely offset weaker net interest income and a big decline in trading income.
The bank reported pre-tax profit of $231 million for the quarter ended March 31, which is down just $2 million from the same period in 2014, and up by $25 million from the previous quarter. Net interest income declined during the last quarter, as did the bank’s trading profits yet fee income surged, and loan impairment charges declined.
“I am happy to report growth in both fees and business volumes across all three business lines,” said Paulo Maia, president and CEO of the bank. “There have been increases in global banking and commercial lending, residential mortgages, wealth balances and capital markets activity in the quarter, and there is good momentum carrying us into the second quarter.”
Yet, the bank continued to face margin pressure, as already-low interest rates were cut in Canada during the quarter. In this environment, the bank saw its net interest income decline by $20 million to $287 million when compared with the same quarter in 2014. Competitive margin pressures were partially offset by growth in commercial loans and residential mortgage lending, it notes.
The bank also saw its net trading income plunge from $39 million in the same quarter a year ago to just $15 million in the first quarter of 2015. The bank says that the drop was mostly due to the impact of movements in the fair value of derivative positions.
“The business continues to face challenges from the low interest rate environment and a delicate balance needs to be kept between investing in our business and managing costs,” notes Maia. “However, I am pleased with the growth we have achieved by providing the expertise and tools our clients need to do business internationally and helping internationally minded individuals to manage their finances.”
On the upside, net fee income for the first quarter of 2015 was $172 million, up by $17 million from the first quarter of 2014. The bank says that the increase stems from increased capital market activities, higher credit fees and growth in funds under management. Corporate finance fees were also higher due to increased advisory, debt capital market and leveraged and acquisition finance activities, it says.
Loan impairment charges and other credit risk provisions were just $16 million for the first quarter, down by $10 million from the first quarter of 2014, and down $21 million compared with the fourth quarter of 2014.
Total operating expenses for the first quarter of 2015 came in at $286 million, which represents an increase of $10 million, or 3.6%, from the same quarter in 2014. The increase in expenses was primarily due to continued investment in growing its global businesses capabilities and higher compliance costs, the bank notes.
By business segment, commercial banking contributed $136 million in pre-tax profit during the quarter, which was down by $13 million, or 9%, compared with the first quarter of 2014. This is primarily due to lower net interest income arising from competitive pressures in the low interest rate environment.
The global banking and markets business saw pre-tax profits increase to $81 million for the quarter, up by $4 million, or 5%, from the same quarter in 2014. The increase was driven by higher gains on the sale of financial investments, and higher fees stemming from increased capital markets activities.
Retail banking and wealth management produced $23 million in pre-tax profit for the quarter, an increase of $8 million from the first quarter of 2014; although this was down by $13 million, compared with the fourth quarter of 2014. For ongoing businesses in this segment (excluding the run-off consumer finance portfolio) quarterly pre-tax profit was $11 million, up by $2 million from the same period in 2014, which was primarily due to increased fees from wealth management products and lower loan impairment charges, partially offset by increased operating expenses, the bank reports.