HSBC Holdings Plc reported profit that missed estimates, weighed down by an unexpected UK fraud-related charge and rising economic risks stemming from the conflict in the Middle East.

Pretax profit for the first three months of the year fell to $9.4 billion, missing the $9.6 billion average estimate compiled by the bank. Those results were partially offset by a resilient performance within the lender’s wealth and Hong Kong units, as well as an upgrade to its net interest income outlook.

The London-based bank booked $1.3 billion in expected credit losses for the period. This figure was driven largely by a $400 million charge linked to what the bank described as a fraud-related, secondary, securitization exposure with a financial sponsor in the United Kingdom. It also recorded a $300 million increase in allowances tied to a deteriorating global economic outlook following the onset of hostilities in the Middle East.

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The “results contained a fair amount of noise across revenue and cost lines, but the underlying picture is one of a mildly stronger banking NII print and ongoing strength in wealth,” Joseph Dickerson and Priya Rathod, analysts at Jefferies, said in a note. They rate the shares a hold.

HSBC’s shares declined as much as 4.8 percent in afternoon Hong Kong trading.

While HSBC has not operated in Iran for more than a decade, the conflict’s broadening scope is threatening a region the bank had targeted for aggressive wealth and corporate banking expansion. It joins several European banks, which have collectively sidelined hundreds of millions of euros to buffer against the regional instability. The heightened allowances underscore the shifting risk profile for global lenders as geopolitical tensions threaten to disrupt key growth markets.

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HSBC also said it expects 2026 ECL charges to be about 45 basis points of average gross loans, from its previous estimate of around 40 basis points.

Kenny Ng Lai-yin, a strategist at Everbright Securities International, attributed HSBC Holdings' sharp share price decline on Tuesday mainly to its first-quarter financial results missing market expectations. But this does not equate to a poor performance, as the overall results were still "relatively satisfactory", he added.

Revenue performance for the first quarter remained resilient, with both interest and non-interest income continuing to post solid growth momentum, although earnings were weighed down mainly by a marked rise in expected credit losses from a year earlier, Ng said.

"The current pullback in its share price does not derail its medium- to long-term upward trajectory."

Ng also believes HSBC's decision to record a $300 million increase in allowances related to heightened uncertainty arising from the conflict in the Middle East has taken into account the outlook for the rest of the year, which means any further increase in provisions is expected to be modest unless tensions escalate significantly.

The wild swings in prices of assets ranging from bonds to currencies and commodities have had a varying impact on bank earnings this season. Stock traders at Barclays Plc have beat expectations, while fixed-income and FX fell short, broadly similar to their peers at Goldman Sachs Group Inc. On the other hand, JPMorgan Chase & Co. notched its highest-ever quarterly trading revenue, with both equities and FICC beating estimates.

Last week, Standard Chartered Plc took a $296 million credit impairment charge, of which $190 million related to what the Asia and Middle East-focused lender said was “precautionary management overlays” tied to the Gulf region.

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The Iran war has battered the region’s economies and caused disruptions to global supply chains. As the world’s largest trade bank and a key financial pipeline connecting the East with the West, HSBC is sensitive to the geopolitical ructions resulting from the hostilities.

HSBC has been on a major restructuring drive for the past 18 months, ever since Elhedery took over as CEO in September 2024. The Lebanon-born banker has shut down, merged and sold several businesses in an effort to simplify the bank’s business and reduce costs. Oversea-Chinese Banking Corp said on late Monday that it’s buying HSBC’s retail and wealth assets in Indonesia.

The transformation of HSBC  has been welcomed by investors, with the shares hitting all-time highs this year. The outbreak of the US-Iran war caused the stock to plunge briefly before it pared most of those losses. 

Iris Li also contributed to this report