• Q1 profit before tax of $9.5 bln, vs forecasts for $7.8 bln

• Bank warns of heightened economic risks from Trump tariffs

• HSBC could book extra $500 mln in credit losses if slowdown hits

(Reuters) - HSBC launched a $3 billion share buyback after reporting a 25% fall in first-quarter profit on Tuesday, and warned of a possible hit to loan demand and credit quality in the face of U.S. President Donald Trump's global trade war.

The London-based bank 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.

The earnings update from HSBC, which is also one of the world's largest trade financing banks, underlined the challenges it faces after a strong run of profit in recent years, as risks of a sharp global economic slowdown from Trump's broad tariffs start to hurt corporate customers.

"The macroeconomic environment is facing heightened uncertainty, in particular from protectionist trade policies, creating volatility in both economic forecasts and financial markets and adversely impacting consumer and business sentiment," HSBC said in its earnings release.

The bank reported $900 million in expected credit losses for the quarter, including $150 million to reflect heightened economic uncertainty, and said it could book an additional $500 million in a scenario where higher tariffs lead to a slowdown in global growth.

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.

Still, HSBC's newly unveiled share buyback is a "positive surprise", said Michael Makdad, analyst at Morningstar.

Analysts at Jefferies described the earnings as strong, noting higher activity in Asia and specifically Hong Kong wealth, which posted 29% growth in new customers quarter-on-quarter.

Shares of HSBC in Hong Kong were up more than 2% after the results in the afternoon trade, while benchmark Hang Seng HSI. tacked on 0.3%.

REVIEW OF MALTA, OVERHAUL CONTINUES

As part of its plan to trim its smaller businesses globally, the bank said it has launched a strategic review of its Malta operations, which is still "at an early stage."

Corporate and institutional banking, its biggest revenue earner after it combined commercial and global banking units, delivered $7.2 billion in revenue in 2024, up 11% from a year earlier.

Its international wealth and premier banking operation posted a 12% increase in revenue during the same period, on "strong performances" in its wealth business, the bank said.

HSBC left unchanged its performance target of a mid-teens return on average tangible equity for each of the three years from 2025 to 2027, having hit 14.6% in 2024.

However, the bank said its stake in Bank of Communications (BOCOM) 3328.HK will drop to about 16% from 19.03%, and it will book a loss of up to $1.6 billion as a result of the Chinese bank's fundraising by private placement of shares.

CEO Georges Elhedery, a career HSBC insider promoted from the CFO role, has shaken up the bank since assuming the top role by slashing the ranks of senior managers and reorganising operating divisions along East-West lines.

The sweeping overhaul will incur severance and other upfront costs of $1.8 billion over 2025 and 2026, in line with earlier estimates.

The bank is also planning to keep growth in its expenses to 3% in 2025 compared with 2024 costs, and said it was committed to reducing annual costs by $1.5 billion by the end 2026.

HSBC is looking to redeploy up to $1.5 billion of costs from non-core businesses into more strategic activities including wholesale transaction banking and an expansion of its Asian wealth business.

The lender said it will pay its first interim dividend of $0.1 a share, following a $0.87 dividend payout last year.