HSBC Holdings Plc, Europe's largest bank, posted a bigger-than-estimated increase in first-quarter profit after provisions for bad loans shrank, stirring speculation the lender may step up its cost-reduction targets.

Pretax profit increased to $8.43 billion from $4.32 billion in the year-earlier period, the London-based bank said in a statement today. That beat the $8.04 billion average estimate of nine analysts surveyed by Bloomberg. Bad loan charges declined 51 percent to $1.17 billion, HSBC said.

Stuart Gulliver has eliminated $4 billion of costs since becoming chief executive officer in 2011, beating his initial target. He's announced 46,000 job cuts and sold or closed 52 businesses to revive earnings. That's prompted speculation among analysts he may set a tougher expense-reduction goal when when he updates investors on the bank's strategy on May 15.

"The true underlying revenue picture is flat, so it makes sense that they would look to the cost side again," said Simon Willis, an analyst at Daniel Stewart Securities Plc whose hold rating on the bank is under review.

HSBC rose 2.7 percent to 732.8 pence at 12:28 p.m. The shares have increased 13 percent this year, making it the third- best performer among Britain's five largest banks.

Revenue excluding swings in the value of the lender's debt rose 5 percent to $17.56 billion. Operating costs shrank to $9.3 billion, from $10.4 billion. Return on equity, a measure of profitability, increased to 14.9 percent, from 6.4 percent.

"This is a robust out turn, but the market is likely to wait for further detail in the upcoming investors day," Patrick Lee, an analyst at RBC Capital Markets in London with a sector perform rating, said in a note to clients today.

On a conference call with reporters today, Gulliver declined to comment on the scope for raising his cost-cutting target. "You can expect us to continue to focus on our cost base," Finance Director Iain Mackay said on the call.

Gulliver, 54, is seeking to reduce the lender's cost-income ratio, or operating expenses as a percentage of net operating income, to between 48 percent and 52 percent by the end of 2013. The lender's ratio was 53 percent in the first quarter excluding swings in currency valuations, acquisitions and sales of businesses and movements in the value of the bank's debt.

Since taking over, Gulliver has reduced the number employed by the bank to 260,000 from 300,000. About 14,000 have gone as the bank sold operations, while 26,000 positions were eliminated. The lender's employee-count will fall to 254,000 as previously-announced plans to cut about 1,100 jobs in the U.K. and disposals are implemented, Gulliver said today. He added he can't rule out further job cuts in Britain.

The company took a $243 million charge on the value of its own debt in the quarter compared with $2.64 billion in 2012. So- called credit valuation adjustments require banks to book losses when the value of their debt rises, and gains when it declines, on the theory that a loss, or profit, would be realized were the bank to repurchase that debt.

Excluding the debt charge, pretax profit rose 34 percent to $7.59 billion. Net income rose to $6.2 billion from $2.4 billion.

Pretax profit at the investment bank, overseen by Samir Assaf, increased 17 percent to $3.59 billion as income from the unit's financing, advisory and underwriting businesses rose.

HSBC's asset sales have helped the lender to boost capital as regulators seek to shield taxpayers from the cost of rescuing banks in future. The bank's capital ratio under the latest rules set by the Basel Committee on Banking Supervision increased to 9.7 percent from 9 percent at Dec. 31, HSBC said.

The bank sold its stake in Shenzhen, China-based Ping An Insurance (Group) Co. for about $9.4 billion in February and the same month said it would sell its Panama unit for $2.1 billion. It completed the sale of its U.S. credit card unit to Capital OneFinancial Corp. for a premium of $2.5 billion last May, the same month it agreed to sell four units in Latin America for about $400 million to Colombia's Banco GNB Sudameris SA.

HSBC is the fourth of Britain's four biggest lenders to report first-quarter earnings. Barclays Plc, Britain's second- largest bank by assets, last month said first-quarter pretax profit excluding losses on the valuation of its debt fell 25 percent to 1.79 billion pounds ($2.8 billion). Standard Chartered Plc, which like HSBC gets most of its earnings in Asia, releases an update on first-quarter trading tomorrow.

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