HSBC HSBC Holdings PLC

By Margot Patrick 

HSBC Holdings PLC's new Chief Executive John Flint got off to a rocky start after costs spiked in the first quarter and a planned $2 billion share buyback fell short of analyst expectations.

The bank's shares fell 2.8% in London and analysts on a call peppered Mr. Flint with questions about the rise in costs. Operating costs in the first three months rose 13%, or 8% after one-off provisions, outpacing a 3% adjusted revenue rise. Net profit was $3.09 billion, slightly down from $3.13 billion in first-quarter 2017.

In an interview, Mr. Flint said the expense rise was the result of investments in areas such as digital banking, and that HSBC is still on track to grow revenue faster than costs over the full year. He said the increase had been built into the bank's internal plans for the year even though it came as a surprise to analysts.

"Given the state of the world at the moment and the opportunities in front of us, there are opportunities for us to invest in growth," Mr. Flint said. "The fact we're investing in the business is a sign of strength."

Mr. Flint, with HSBC since college, became CEO in February after previously heading the bank's retail division and holding other top roles. Under former CEO Stuart Gulliver HSBC went through a radical restructuring to improve profits, exiting dozens of businesses and entire parts of the globe. It is still one of the world's largest banks with $2.7 trillion in assets.

The appointment of Mr. Flint by Chairman Mark Tucker, also new to the job since October, was seen as a safe choice, signaling continuity in the bank's direction.

On Friday, Mr. Flint said HSBC's current strategy is working but that some tweaks will be announced at or before first-half results in August. Analysts expect HSBC to grow its insurance and asset-management arms, possibly through acquisitions or joint ventures, and exit retail operations in more countries over time.

Meeting with reporters last week after an investor meeting, Mr. Flint said the bank can't realistically set any aggressive new financial targets until it meets current ones such as reaching a 10% return on equity. In 2017, the return was 5.9%. It improved in the first quarter to 7.5%.

No changes are expected to the bank's pursuit of greater revenue growth from China, where HSBC has been investing in retail banking and a new securities business.

The bank on Friday said it would buy back another $2 billion in shares, adding to buybacks last year. The announcement disappointed some analysts though since HSBC said it was likely to be the only one this year. UBS analysts said they had expected $4 billion in buybacks this year.

Kenan Machado and Chester Yung contributed to this article.

Write to Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

May 04, 2018 07:10 ET (11:10 GMT)

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