HSBC Holdings PLC (LSE:HSBA) shares fell 5.4% to 1,286p in early trading in London on Tuesday after the biggest lender in Europe was forced into making heavier credit losses than expected due to the war in the Middle East.
Pre-tax profit of $9.37 billion was down from $9.48 billion a year earlier and below the $9.59 billion average analyst forecast.
Charges for expected loan losses of $1.3 billion were made, up $0.4 billion compared to a year ago.
Impairments were driven by around a $300 million increase in provisions to "reflect heightened uncertainty and a deterioration in the forward economic outlook due to the onset of the conflict in the Middle East", as well as roughly a $400 billion fraud-related exposure for the UK corporate and institutional banking arm.
The latter loss was later revealed to have come via client Apollo lending to collapsed mortgage lender MFS, which also led to a £0.2 billion impairment that Barclays that reported this past quarter.
Richard Hunter, head of markets at investment platform Interactive Investor, said these credit impairments "largely blotted the copybook for this quarter".
He also said that "the lack of a return to the share buyback programme may also provide some disappointment".
HSBC joins its other UK banking peers in facing some impact from the US and Israel's war on Iran and Lebabon, though HSBC, along with Standard Chartered, is thought to have larger exposure to the region.
The new expected losses add to a previous $2.1 billion charge for losses related to its Chinese Bank of Communications stake and $1.4 billion of legal provisions, which contributed to an overall $4.9 billion headwind last year.
"HSBC's results always bring more of an international flavour than its UK peers," said Chris Beauchamp, chief market analyst at online broker IG.
"Unfortunately that means the Hormuz crisis looms large in the results, casting a shadow over an otherwise solid set of numbers.
"The theme is grimly familiar to investors; were it not for the crisis, earnings outlooks would be much rosier. The warnings around the economic impact will only continue to grow the longer the situation remains unresolved."
Matt Britzman, senior equity analyst at Hargreaves Lansdown, agreed that the first-quarter "was better than the headline numbers suggest", though he noted that costs were higher than predicted as performance pay, inflation and technology spend all bit into profits.
The largest company in the FTSE 100 also upgraded full-year net interest income guidance, similar to what was seen from peers last week.
This gives investors "some comfort that the income engine still has fuel in the tank", Brizman said.
Hunter added that other key metrics remained generally robust, with return on tangible equity excluding notable items rising from 18.4% to 18.7%, the net interest margin increasing from 1.59% to 1.6%, while net interest income grew by 7.7% thanks to deposit growth and the benefit of structural hedge income.
"The group’s push towards the affluent sector received another boost, with the most promising contribution coming from Wealth," he said.
"Whereas HSBC had been moving towards becoming a business with a slavish reliance on interest rate movements and levels, the revised and increasing focus on the growth in affluent wealth, especially in Asia, is key to the new offering.
"The group has been investing heavily in this move, giving HSBC higher, but more diversified income streams. Apart from the longer-term potential for the key Chinese market, the group previously identified areas such as India and Vietnam as being some of the fastest growing economies at present."
However, Brizman said that it was "a typically messy quarter" for the bank, "the core franchise looks healthy, but HSBC still needs to prove it can keep a lid on costs and impairments if the market is going to give full credit for that stronger revenue base.”
And Hunter agreed that it "remains to be seen whether this quarter turns out to be a blip towards HSBC’s aspirations".