Business News : Investment bank bounce seen lifting HSBC profit

LONDON (Business News) - HSBC (HSBA.L) (0005.HK) was set to report quarterly profit of almost $ 6 billion on Tuesday as Europe's biggest bank benefits from a rebound in investment banking income and falling bad debts, although it is struggling to cut costs.

Chief executive Stuart Gulliver is not yet midway through a major revamp to boost profit by cutting costs, quitting areas where the bank lacks scale and increasing its focus on Asia.

First-quarter results were expected to show investment banking revenue rose to more than $ 5 billion as fixed-income, currencies and commodities income bounced back from a weak second half of last year, echoing trends seen among European and U.S. rivals.

Bad debts, including in the United States where HSBC continues to run down its consumer finance business, were expected to fall.

A surprise rise in U.S. impairments in the third quarter of last year unsettled investors, but foreclosure and impairment trends at other lenders have improved this year.

HSBC's underlying first quarter profits should come in at $ 5.8 bill ion, according to the average of five analysts' forecasts, compared to $ 5.5 billion a year ago. Movements in the value of the bank's own debt could cut statutory profits.

HSBC made a 2011 pretax profit of $ 21.9 billion, the largest by a western bank, as strong growth in Asia, Latin America and the Middle East offset sluggish conditions in Europe. Its underlying profit was $ 17.7 billion, down 6 percent on the year.

Investors are keen for an update on how Gulliver's far-reaching turnaround plan to lift return on equity above 12 percent and cut costs to below 52 percent of revenue is faring.

Details on Tuesday may be limited, however, to be saved for an investor day later in May.

"Longer term we see this reshaping as positive, but think it will take time before the market can appropriately gauge the future return profile of th e bank and therefore ascribe any value for this reshaping," analysts at Credit Suisse said.

They reckon Gulliver may have to revise his cost/income ratio target, predicting he will only get it down to 54 percent by 2014. Costs rose 10 percent last year as the bank said it had to pay higher wages in Brazil, China and other emerging markets.

HSBC fared better than rivals during the global financial crisis thanks to its traditionally strong capital and liquidity, and its exposure to faster-growing emerging markets, but critics say it has failed to drive home that advantage in the way JP Morgan (JPM.N) has.