HSBC Holdings beat forecasts with a 31 per cent rise in the first quarter profit, bolstered by a surge in income from its core Asian business due to the absence of legal and regulatory expenses borne in the year-ago quarter.

Reining in costs has been one of the biggest challenges for HSBC Chief Executive John Flint with the bank last year missing its target of ‘positive jaws’ — which tracks whether the bank is growing revenues faster than costs.

The bank said operating expenses dropped 12 per cent in the March quarter, helped by one-off sales in its retail and commercial businesses and the non-recurrence of regulatory fines.

HSBC booked $897 million in legal and regulatory expenses in the first quarter of 2018 but did not have those and others such as currency translation costs in the current quarter.

“We are proactively managing costs and investment in line with this more uncertain (global economic) outlook, and will continue to do so,” Flint said in the bank’s earnings statement on Friday.

HSBC warned in February that it may have to delay some investments this year as it missed 2018 profit forecasts due to slowing growth in its two home markets of China and Britain.

Profit before tax at Europe’s biggest lender by assets rose to $6.21 billion in the March quarter from $4.76 billion in the same quarter last year. The profit was above the $5.58 billion average of analysts’ estimates compiled by the bank.

The bank’s core capital ratio, a key measure of financial strength, rose to 14.3 per cent at the end of March from 14 per cent at the end of 2018. Analysts expected the latest end-quarter ratio to be at 14.0 per cent.

Hong Kong shares of HSBC rose more than 2 per cent after the results, reversing their losses earlier in the day.

While HSBC has been boosting investments to raise its market share in businesses such as retail banking and wealth management, some of its other units, mainly investment banking, struggled with staff exits and slower revenue growth.

The division, which advises clients on finance and mergers, has lost senior dealmakers and slipped down the rankings in merger advisory and equity capital markets amid internal questions over its strategic direction.

The lender reshuffled its global banking division on Tuesday as former JPMorgan banker Greg Guyett put his stamp on the business, which has been under pressure in recent years.

HSBC’s investment banking business had a poor first quarter, in common with many of its US and European rivals that saw trading revenues fall as subdued markets kept clients from trading.

The London-headquartered bank, which makes the bulk of its revenue in Asia, saw in the January-March quarter its stock trading business fare particularly poorly, with revenues falling 8 per cent despite a helpful one-off provision release.

Reported pretax profit for the bank’s Asia operations rose 5 per cent during the first quarter to $5 billion, with the region accounting for 81 per cent of the bank’s overall profits.

HSBC’s regional pivot is centred around China’s Pearl River Delta region with billions in investment commitments and plans to bolster its retail and wealth management business in the world’s second-largest economy.

The bank said it was making more investments in Asia to “support business growth”.

Flint said in June last year that HSBC would invest $15 billion-$17 billion over three years in areas including technology and China, while keeping profitability and dividend targets unchanged.

The bank said that the turnaround strategy for its business in the United States, which has for years underperformed, was progressing, but that task remained its “most challenging strategic priority”.

In the March quarter, North America posted a pretax profit of $379 million compared to a loss of $596 million in the year-ago period, as the bank increased retail customer numbers and capitalised on its international network, it said.

The results for the London-headquartered bank, which makes the bulk of its profits in Asia, showed both the benefits and costs of its global reach and business mix, at a time when other European lenders are shrinking.

While HSBC’s US business continued to drag down the group and its investment bank fared poorly compared with peers, the bank grew revenues 7 per cent in Asia and saw income in its retail and commercial banking divisions rise around 10 per cent.

“HSBC has been one of the few banks reporting first quarter earnings that showed a favourable revenue mix,” analyst Joseph Dickerson at Jefferies said. HSBC’s shares rose 2.5 per cent in London, against a 0.5 per cent rise in the STOXX European banks index.

Reuters