HSBC profit plummets due to coronavirus pandemic
HSBC warned warned its bad debt charges could soar to $13bn this year as the bank reported a sharp drop in profit in the first half of 2020 due to the impact of the coronavirus pandemic.
The figures
The lender’s share price fell 4.63 per cent to 326.25p this morning as it announced that profit after tax plunged 69 per cent to $3.1bn in the first six months of the year.
Profit before tax dropped 65 per cent to $4.3bn from higher expected credit losses, other credit impairment charges and lower revenue.
HSBC also reported a $1.2bn impairment on software intangibles, mainly in Europe.
Return on average tangible equity, a key measure of profit, was 3.8 per cent, down from 11.2 per cent in the same period last year.
Revenue slumped nine per cent to £26.7bn during the first half of the year.
The bank reported a common equity tier 1 capital (CET1) ratio of 15 per cent, up 30bps from the fourth quarter of 2019.
The jump was attributed to higher CET1 capital, which included an increase from the cancellation of the fourth quarter dividend and the current suspension of dividends on ordinary shares.
Why it’s interesting
The bank increased its estimate of the total bad debt charges it could take this year to between $8bn and $13bn, up from a previous forecast of $7bn to $11bn.
The increase reflects worse-than-expected actual losses in the second quarter and expectations of a steeper decline in the economy.
“What we have seen this quarter is quite a sharp shift in economic outlook for the global economy, the famous ‘V’ has got a lot sharper and as a result we have materially increased our provisions,” Finance chief Ewen Stevenson told Reuters.
HSBC’s business in Britain has been hit particularly hard, Stevenson said, as it took a $1.5 billion charge against expected credit losses.
What HSBC said
HSBC chief executive Noel Quinn said:
“Our first half performance was impacted by the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened
levels of market volatility.“Despite this, our Asia franchise showed resilience, and our Global Markets business delivered strong growth compared with last year’s first half.
“Having paused parts of our transformation programme in response to the Covid-19 outbreak, we now intend to accelerate implementation of the plans we announced in February.
“We are also looking at what additional actions we need to
take in light of the new economic environment to make HSBC a stronger and more sustainable business.
“Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC’s footprint. We will
face any political challenges that arise with a focus on the long-term needs of our customers and the best interests of our investors.”
What analysts said
Interactive Investor head of markets Richard Hunter said: “Given the nature of the business, HSBC has additional issues to face.
“The tense political situation in and around Hong Kong and the deteriorating relations between the US and China place additional burdens on the bank’s operations in the area, despite a tentative economic recovery in the region.
“From an investment perspective, the ongoing lack of a dividend removes another reason to consider the stock, while the outcome and details of the UK’s exit from the EU remains to be decided.”
He added: “The immediate outlook is bleak and investors are gravitating towards any of the banks with more obvious prospects, as opposed to those in full firefighting mode.”
City Index analyst Fiona Cincotta said: “The US – China spat is making for a very difficult climate to operate in and investors are giving the stock a wide birth.
“Two straight quarters of vast loan loses, and a deteriorating economic outlook pose serious challenges for a bank which was already struggling.
“The share price is trading at levels last seen in 1998 and the prospect for much pickup is low.”