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HSBC Holdings PLC smashed forecasts with a 31 per cent rise in first quarter profit, bolstered by a surge in income from its core Asian business and by lower costs that outweighed a poor performance from investment banking.

The promising set of results showed Europe’s biggest bank balancing its growth ambitions with the need to rein in costs, the key challenge facing chief executive John Flint after years of restructuring.

HSBC said operating expenses dropped 12 per cent in the January-March quarter, helped by one-off sales in its retail and commercial businesses, and the non-recurrence of U.S. regulatory fines for past misdeeds.

Profit before tax rose to US$6.21 billion from US$4.76 billion in the same quarter last year, above the US$5.58 billion average of analysts’ estimates compiled by the bank.

HSBC warned further cost cuts may be needed in the year ahead, in order to avoid a repeat of last year’s failure to meet the target of positive ‘jaws’, which measures if income is growing faster than expenses.

“We are not declaring victory on jaws for the full year,” chief financial officer Ewen Stevenson told reporters.

HSBC said it would update investors on the potential for returning more capital to shareholders when it reports half-year results in June, with further share buybacks expected.

“These are, in our view, undoubtedly positive numbers, and if HSBC can continue delivering its current returns and growing capital we see little reason returns to shareholders won’t follow suit,” Nicholas Hyett, an analyst at online-investment platform Hargreaves Lansdown, said.

HSBC’s shares were up 2.7 per cent in London at 1015 GMT, within a STOXX European banks index up 0.4 per cent.

HSBC’s trading business had a poor first quarter, in common with many of its U.S. and European rivals that saw revenues fall in subdued markets.

HSBC’s stock traders did particularly badly, with revenues tumbling 34 per cent excluding a favourable one-off provision, the worst performance of an equities business in the quarter among major U.S. and European banks.

While HSBC has been boosting spending to raise its market share in businesses such as retail banking and wealth management, investment banking has struggled in the past year with staff departures and slower revenue growth.

The banking division, which advises clients on finance and mergers, has lost senior deal makers and slipped down the 2018 rankings in merger advisory and equity capital markets amid internal questions over its strategic direction.

HSBC saw some improvement in its merger and equity-advisory rankings in the first quarter, according to Refinitiv data.

The lender reshuffled the unit on Tuesday as former JPMorgan banker Greg Guyett put his stamp on the business.

“We are always looking at parts of the business and trying to improve them, but there should be no dramatic changes,” HSBC’s Mr. Stevenson said when asked if further changes were needed to the investment bank.

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.

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

While the bank’s pretax profit in Asia rose 5 per cent during the first quarter to US$5 billion, accounting for 81 per cent of overall profits, other regions fared worse.

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

In the first quarter, North America posted a pretax profit of US$379 million compared with a loss of US$596 million in the same period last year, as the bank increased retail customer numbers and capitalized on its international network, it said.

HSBC also said expected credit losses in its commercial bank rose by US$300 million thanks mainly to small corporate exposures in Britain amid continuing uncertainty over the country’s departure from the European Union.

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