By Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON (Reuters) - HSBC Holdings Plc (L:HSBA) reported a better than expected first-quarter profit and capital position on Thursday, benefiting from an improved performance from its core operations and the return of cash from its U.S. unit.
The bank's common equity tier 1 ratio -- a key measure of its financial strength -- was 14.3 percent at the end of the March quarter, up from 11.9 percent in the same period last year and better than the 13.7 percent expected by analysts.
HSBC's shares rose 3 percent in London on Thursday, outperforming a 1 percent rise in the STOXX European banks index (SX7P) and following an earlier 2 percent rise in Hong Kong.
HSBC is still Europe's biggest bank despite slimming down in recent years. Along with U.S. rivals such as JPMorgan (N:JPM) and Citi (N:C), it remains one of a handful of players to offer retail and investment banking services across the globe.
HSBC Chief Financial Officer Iain Mackay ruled out a fresh share buyback in the short term as a means of using some of its excess capital, after the bank said it completed a previously announced $1 billion (£775.4 million) share buy-back in April.
"We've just finished one, we need to catch our breath a little bit," Mackay told Reuters on Thursday.
Mackay also reiterated the bank's stance that it will hold its dividend steady for now, quashing shareholders' hopes that the lender's robust capital levels would see it boost payouts.
HSBC is expected to receive a further capital boost as it repatriates some $8 billion currently stuck in its U.S. subsidiary, following approval by the Federal Reserve last year of its plans to begin the process.
Mackay however said the bank's deferred prosecution agreement with the U.S. Department of Justice may complicate those plans, confirming a Reuters report last September..
Addressing another of the issues facing major banks, HSBC Chief Executive Stuart Gulliver said that the bank's previous estimate that around 1,000 staff would move to Paris following Britain's vote to leave the EU, was based on a 'hard Brexit' scenario.
PROFIT DECLINE
Shareholders at the bank's annual meeting last week overwhelmingly voted in favour of re-electing Gulliver to the lender's board, in an affirmation of his strategy in recent years to shrink and refocus the bank.
Gulliver and outgoing Chairman Douglas Flint have sought to unwind much of the empire-building of their predecessors since their appointments in 2010 - a response to a tough environment of low interest rates and increased regulation.
Flint will be replaced by AIA Group (HK:1299) boss Mark Tucker in October, while Gulliver is due to leave next year.
HSBC said pretax profit for the first three months of the year fell to $5 billion, down from $6.1 billion a year ago but better than the $4.3 billion expected on average by analysts according to the bank's own survey.
The profit decline was due to a change in the accounting treatment of the fair value on its debt and because its year-ago earnings included the operating results of the Brazil business that it sold in July, HSBC said.
Revenue in the quarter dropped 13 percent to $13 billion.
However, the bank's adjusted profit before tax, excluding the exceptional items, rose 12 percent in the quarter to $5.9 billion.
In the first quarter HSBC said it had increased customer lending by 17 percent over the same period last year and assets under management by 15 percent in China's Pearl River Delta, a key plank of the management duo's strategy to refocus on Asia.
Reuters reported earlier this month the bank's progress in attracting individual customers in the region has been slower than planned.
In response to a question on the matter, HSBC's Mackay said the bank is not close to where it wants to be on that growth but is making good progress expanding loans and mortgages.