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By Selena Li, Lawrence White and Sinead Cruise
HONG KONG/LONDON (Reuters) -HSBC warned that loan demand and credit quality could suffer from the broader fallout of U.S. President Donald Trump's global trade war, signalling tougher times for trade-focused banks even as the lender's first quarter profit beat forecasts.
Europe's largest bank reaffirmed targets and unveiled a fresh $3 billion share buyback as it reported first quarter profit before tax of $9.5 billion compared with $12.7 billion a year earlier, mainly due to one-time charges related to business disposals in Canada and Argentina.
Analysts had expected pre-tax profit of $7.8 billion for Europe's biggest lender by assets. HSBC's Hong Kong shares were up 3.2%, against a flat Hang Seng benchmark, while London-listed stock was trading 2.1% higher at 0756 GMT.
The earnings update from HSBC, which is also one of the world's largest trade financing banks, provided the clearest warning yet from a major bank on how the global ripple effects of Trump's tariff actions could hurt lenders by dampening loan demand and business sentiment.
"We've looked at all our revenue streams as well as our credit portfolio to assess the various implications of such a downside scenario," CEO Georges Elhedery told reporters on a conference call.
"The outcome of this analysis is that in an adverse but plausible downside scenario, we have a low single digit impact on our revenues and about half a billion dollars worth of additional expected credit losses," he said.
The bank reported $900 million in expected credit losses for the quarter, including $150 million to reflect heightened economic uncertainty.
U.S.-China business customers have been particularly impacted, Elhedery said.
"We've seen a significant drop in volumes along the U.S.- China corridor in the sectors that have not been given a waiver or the reduction of tariffs," the CEO told reporters.
Executives at big U.S. banks during recent earnings warned of economic turbulence after Trump unleashed sweeping tariffs on April 2. Consumers and businesses have become more cautious as Trump's global trade war roils financial markets and raises fears of a sharp worldwide economic downturn.
Elhedery said the lender's Mexico business would likely see some disruption but remained a "critical node" in its global trading network.
A Reuters poll showed Mexico's economy, which stood on the brink of a technical recession last quarter, will barely grow at all this year.