If HSBC Bank Canada's quarterly results say anything about the impending reporting season for the Big Six, it's that the industry's worst fears are unfounded.
That is, if you think the big banks are about to feel some pain related to falling interest rates, a competitive mortgage market or rising consumer debt, HSBC's results suggest that these issues have yet to make much of an impact – offering a potentially soothing report three weeks ahead of the fiscal second-quarter kickoff by Bank of Montreal on May 27.
HSBC Bank Canada, a division of HSBC Holdings PLC and which ranks a distant seventh among Canadian banks in terms of size, reported that profit before income tax slipped slightly year over year to $231-million in the first quarter. Final profit rose slightly to $163-million, up less than 2 per cent.
The details are more interesting. Net interest income fell 6.5 per cent year over year, reinforcing the fact that this is bound to be a hot topic this year as banks navigate an environment of low Bank of Canada overnight rates and a flat yield curve.
These conditions have shrunk the difference between a bank's borrowing and lending rates, undermining a big source of its earnings. But as HSBC's results show, the dip isn't alarming and has been offset by encouraging growth elsewhere.
Where? For one, commercial loans and residential mortgages are on the rise, suggesting that indebted Canadians aren't tapped out just yet. At the same time, Canadians appear to be handling high debt loads with ease. Loan impairment charges fell from last year (partly because of a smaller consumer finance portfolio).
Finally, if cost cutting is emerging as a big theme in 2015 – particularly after recent reports of belt-tightening at BMO and Toronto-Dominion Bank – then HSBC offers a mixed result. Total operating expenses rose 3.6 per cent from last year, after rising employee compensation and falling general and administrative expenses.