HSBC quarterly profit halves as loan provisions increase

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HSBC’s profits almost halved and the bank increased its provisions for bad debts in the first quarter by more than 400% due to the coronavirus crisis, as it issued a harsh warning about future performance.

The London-based lender on Tuesday announced pre-tax earnings of $ 3.2 billion for the quarter, down 48% from the same period last year. The return on tangible equity, a key measure of profitability, fell to 4.2% over the period, from 10.6% in the first quarter of last year.

“If the Covid-19 epidemic continues to disrupt global economic activity until 2020, there could be other negative impacts on our revenues,” said HSBC.

The bank said it had set aside $ 3 billion to cover bad debts, an increase of 417% from $ 585 million in the same period last year. He blamed “corporate exposure in Singapore” which he did not detail, but said it “was the main driver” of a $ 700 million increase in expected credit losses in Asia.

HSBC has the largest known exposure to Singaporean oil trader Hin Leong, at $ 600 million.

The pandemic also hit competitors to HSBC, with the six largest US lenders increasing their first quarter loan provisions by $ 25.4 billion, an increase of 350% year-over-year.

At Credit Suisse, the measure jumped 600% last week and, while UniCredit in Italy has set aside an additional € 900 million, a much larger increase compared to the same period last year.

Some executives and investors have expressed concern that the virus epidemic could delay or derail the long-awaited HSBC strategic overhaul unveiled in February. Noel Quinn, chief executive, described it as one of the “deepest restructurings” in HSBC’s 155-year history, which saw it double the bank’s pivot to Asia and reduce operations less profitable in Europe and the United States.

Although based in London, HSBC generates more than four-fifths of its profits in Asia, particularly in Hong Kong.

The bank previously said it wanted to cut annual costs by $ 4.5 billion and lose 100 billion risk-adjusted assets by the end of 2022, with the goal of reducing the workforce from 235,000 to 200,000 people. three years. But due to the global health crisis, HSBC has temporarily delayed parts of this cost-cutting program.

The bank said on Tuesday its operating expenses were $ 400 million lower than the same period last year, at $ 7.9 billion, but that “included favorable currency translation differences of 0 , $ 2 billion ”.

Pressure from the Bank of England last month forced HSBC to cancel its dividend for the first time in 74 years. The move has sparked fury at its large Asian retail investor base, which is threatening legal challenges. He also reignited a debate among key bank leaders over whether to redefine his home in Hong Kong.

Christopher Cheung, a Hong Kong legislator representing the financial services industry, told the Financial Times that “HSBC has lost the trust of Hong Kong people,” even though he did not think the court challenge would be successful.

The bank – which has said it will pay no quarterly or interim dividends until the end of the year – warned that if the crisis were to continue, it could have an “adverse effect” on future dividends.

HSBC was looking to rebound in early 2020 after a $ 3.9 billion pre-tax loss for the fourth quarter of 2019, after writing down $ 7.3 billion in depreciation on its investment and commercial banks in Europe.

Editor’s note

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