BANKING giant HSBC has posted a sharp drop in profits for the first three months of the year after it was hit by "extreme levels of volatility" in financial markets in January and February.

Chaired by Glasgow-born Douglas Flint, HSBC saw underlying pre-tax profits fall 18 per cent to $5.43 billion (£3.7bn) in the first quarter compared with $6.6bn in the same period last year.

Chief executive Stuart Gulliver said: "Market uncertainty led to extreme levels of volatility in January and February, which affected our ability to generate revenue in our markets and wealth management businesses.”

However, the result beat analysts’ expectations that profits would fall to $4.2bn.

Mr Gulliver said HSBC’s diversified, universal-banking business model helped to cushion the impact of the fall in global banking and markets revenues through growth in other parts of the bank.

He noted HSBC grew revenue from current and savings accounts in the UK, although profit margins on mortgage lending remained under pressure in a low interest rate environment.

The bank said it had achieved a "resilient" performance in difficult market conditions, with the entire investment banking sector suffering after stock markets tumbled at the start of 2016 amid an oil price rout.

While credit quality remained robust, HSBC said it had recorded additional loan impairment charges

in the first quarter related to the oil and gas, and metals and mining sectors.

But cost cutting in other areas helped to compensate.

HSBC has cut employee numbers by around 1,000 since the end of 2015 alone, to 254,212, with global business units and functions bearing the brunt of the cuts.

Mr Gulliver said HSBC has a good grip on operating expenses and is confident of achieving the plan to save $5bn by 2017 which it announced in June.

The first quarter dividend was held at 10 cents per share.

HSBC expects to shed 50,000 jobs globally by the end of 2017 under a strategy which will see the group closing retail branches, shrinking its investment bank and selling its Brazilian and Turkish operations. It plans to shift resources to what it views as more promising Asian markets

In February HSBC said it had decided to keep its headquarters in the UK, rather than moving the nerve centre to its main profit-generating hub Hong Kong after a 10-month review.

HSBC said directors had made the unanimous decision to keep the headquarters in London in a move that the Government said provided a vote of in its handling of the economy.

Mr Flint denied the suggestion it had used the threat of moving to force the UK government to cut the bank levy.

HSBC has signalled confidence in Scotland as a centre of banking talent and a market for its services.

The bank employs around 3,700 people in Scotland and recently opened its third big office in Edinburgh. It employs more than 1,200 people in the city in areas such as investment administration.

HSBC has opened corporate and commercial banking centres in Glasgow, Edinburgh and Aberdeen in recent years.