HSBC posts surprise capital boost but rules out dividend hike, buybacks

Sumeet Chatterjee and Lawrence White

* Q1 profit before tax $5 bln versus $6.1 bln a year ago

* CET1 ratio at 14.3 pct vs 13.7 pct consensus

* CFO says U.S. deferred prosecution affects capital plans

* London shares rise more than 3 percent

(Adds London share reaction, Brexit comment)

HONG KONG/LONDON, May 4 (Reuters) - HSBC Holdings Plc

reported a better than expected first-quarter profit

and capital position on Thursday, benefiting from an improved

performance from its core operations and the return of cash from

its U.S. unit.

The bank's common equity tier 1 ratio -- a key measure of

its financial strength -- was 14.3 percent at the end of the

March quarter, up from 11.9 percent in the same period last year

and better than the 13.7 percent expected by analysts.

HSBC's shares rose 3 percent in London on Thursday,

outperforming a 1 percent rise in the STOXX European banks index

and following an earlier 2 percent rise in Hong Kong.

HSBC is still Europe's biggest bank despite slimming down in

recent years. Along with U.S. rivals such as JPMorgan

and Citi, it remains one of a handful of players to offer

retail and investment banking services across the globe.

HSBC Chief Financial Officer Iain Mackay ruled out a fresh

share buyback in the short term as a means of using some of its

excess capital, after the bank said it completed a previously

announced $1 billion share buy-back in April.

"We've just finished one, we need to catch our breath a

little bit," Mackay told Reuters on Thursday.

Mackay also reiterated the bank's stance that it will hold

its dividend steady for now, quashing shareholders' hopes that

the lender's robust capital levels would see it boost payouts.

HSBC is expected to receive a further capital boost as it

repatriates some $8 billion currently stuck in its U.S.

subsidiary, following approval by the Federal Reserve last year

of its plans to begin the process.

Mackay however said the bank's deferred prosecution

agreement with the U.S. Department of Justice may complicate

those plans, confirming a Reuters report last September.

.

Addressing another of the issues facing major banks, HSBC

Chief Executive Stuart Gulliver said that the bank's previous

estimate that around 1,000 staff would move to Paris following

Britain's vote to leave the EU, was based on a 'hard Brexit'

scenario.

PROFIT DECLINE

Shareholders at the bank's annual meeting last week

overwhelmingly voted in favour of re-electing Gulliver to the

lender's board, in an affirmation of his strategy in recent

years to shrink and refocus the bank.

Gulliver and outgoing Chairman Douglas Flint have sought to

unwind much of the empire-building of their predecessors since

their appointments in 2010 - a response to a tough environment

of low interest rates and increased regulation.

Flint will be replaced by AIA Group boss Mark

Tucker in October, while Gulliver is due to leave next

year.

HSBC said pretax profit for the first three months of the

year fell to $5 billion, down from $6.1 billion a year ago but

better than the $4.3 billion expected on average by analysts

according to the bank's own survey.

The profit decline was due to a change in the accounting

treatment of the fair value on its debt and because its year-ago

earnings included the operating results of the Brazil business

that it sold in July, HSBC said.

Revenue in the quarter dropped 13 percent to $13 billion.

However, the bank's adjusted profit before tax, excluding

the exceptional items, rose 12 percent in the quarter to $5.9

billion.

In the first quarter HSBC said it had increased customer

lending by 17 percent over the same period last year and assets

under management by 15 percent in China's Pearl River Delta, a

key plank of the management duo's strategy to refocus on Asia.

Reuters reported earlier this month the bank's progress in

attracting individual customers in the region has been slower

than planned.

In response to a question on the matter, HSBC's Mackay said

the bank is not close to where it wants to be on that growth but

is making good progress expanding loans and mortgages.

(Reporting by Sumeet Chatterjee and Lawrence White; Editing by

Edwina Gibbs and Keith Weir)