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HSBC warns loan losses could hit $13 billion as profit plunges 65%

Lawrence White, Alun John

LONDON/HONG KONG (Reuters) - HSBC Holdings PLC warned its bad debt charges could blow past a previous estimate to $13 billion this year and said its profits more than halved, as the coronavirus pandemic hammered the bank’s retail and corporate customers worldwide.


The lender warned its capital reserves could deteriorate, its revenues would come under pressure and it faced heightened geopolitical risk as Europe’s biggest bank set out a gloomier than expected outlook for the second half of the year.

HSBC increased its estimate of the total bad debt charges it could take this year to between $8 billion and $13 billion from $7 billion-$11 billion, reflecting 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,” Chief Financial Officer Ewen Stevenson told Reuters.

HSBC’s shares fell 4.6% to a nerly twelve-year low as investors digested the scale of the challenge facing HSBC, as it grapples with a global pandemic, political unrest in its core Hong Kong market, and low interest rates on its lending worldwide.

The bank reported a pre-tax profit of $4.32 billion for the first six months this year, lower than the $5.67 billion average of analysts’ forecasts.
FILE PHOTO: HSBC logo is seen in the financial district in New York, U.S., August 7, 2019. REUTERS/Brendan McDermid/File Photo

HSBC’s business in Britain has been hit particularly hard, Stevenson said, as it took a $1.5 billion charge against expected credit losses.

HSBC’s results reinforced the trend of lenders across the world increasing their buffers to absorb souring loans at a time when companies - from aviation to retail and hospitality sectors - are reeling from the impact of COVID-19.

TROUBLE AHEAD

The bank’s credit impairment provisions in the first-half soared to $6.9 billion, compared to $1 billion in the same period a year earlier.

Impairment charges included a $1.2 billion writedown on the value of software it owns, mainly in Europe, it said.

While HSBC’s core capital ratio, a key measure of financial strength, rose to 15% at the end of June, the bank warned the metric would likely decline later this year as falling credit ratings hit its risk-weighted asset ratio.

Its revenues fell 9% in the six-month period, as global interest rate cuts and declining market values on assets in investment banking and insurance outweighed higher trading income.

HSBC is continuing to review its long-term dividend policy, CEO Noel Quinn said in a statement.

FILE PHOTO: A Chinese national flag flies in front of HSBC headquarters in Hong Kong, China, July 28, 2020. REUTERS/Tyrone Siu/File Photo GLOBAL BUSINESS WEEK AHEAD

The bank earlier this year halted payouts in response to a regulatory request in Britain, infuriating many of its retail investors who rely on it for income, particularly in Hong Kong.

Quinn told Reuters the bank’s staff headcount has fallen by some 4,000 this year after it restarted a redundancy programme that was put on ice after the coronavirus outbreak.

The bank is aiming to cut costs by 3% this year from that restructuring as well as lower employee spending on travel and other items during the pandemic, he said.

Only a fifth of the around 9,000 staff in its headquarters in London’s Canary Wharf district would be able to return to work in the near term for safety reasons, Quinn told Reuters.


Reporting by Alun John in Hong Kong and Lawrence White in London; Additional reporting by Noah Sin in Hong Kong; Editing by Muralikumar Anantharaman and Louise Heavens


HSBC profits sink by 82% as loans sour: Shares plunge to lowest levels since 2009 crisis

By LUCY WHITE FOR THE DAILY MAIL

PUBLISHED: 3 August 2020 

HSBC profits plunged more than 82 per cent as the bank warned £10billion worth of loans could turn sour this year due to the coronavirus pandemic. 

The London-headquartered lender, which makes most of its money in Asia, said pre-tax profits slid to just £824m in the three months to June 30, down from £4.7billion over the same period last year. 

This was much worse than the £1.9billion expected by analysts, and caused shares to slump 2.9 per cent, or 9.95p, to 332.25p – their lowest level since March 2009 during the depths of the last financial crisis. 

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Slump: The lender said pre-tax profits slid to just £824m in the three months to June 30

HSBC boss Noel Quinn said he was planning to 'accelerate' his shake-up of the bank in a cost-cutting drive which was already set to see 35,000 jobs axed globally by 2022. 


The brutal restructuring was initially put on hold during the pandemic, but chief financial officer Ewen Stevenson confirmed yesterday that 3,800 jobs had been cut since the beginning of the year. 

And in a worrying sign for office landlords and business districts around the world, Quinn added that the bank may need less office space in future as the pandemic pushed more staff to work from home. 

He said: 'I do think there's potential over the medium term to reflect on different ways of working, allowing people greater flexibility to work from home or in the office.' 

Prime Minister Boris Johnson has urged workers to return to their offices where possible as lockdown eases, to bring life to deserted business hotspots. 

But the majority of staff at HSBC and other major financial institutions have been working at home throughout the pandemic, and many firms are now wondering whether they need all of their towering skyscrapers in costly locations such as Canary Wharf and London's Square Mile. 

The pandemic has also been weighing on HSBC's loan book, as it thinks more borrowers will become unable to repay their loans due to job losses and the resulting economic downturn. 

It had already set aside £2.3billion to cover bad loans in the first three months of 2020, and ramped this up to £5.3billion in June as the extent of the damage began to emerge. 

HSBC warned the cost over the full year could be as high as £10billion. Its outlook for the UK was gloomy, as around £1billion of the expected losses were linked to the country. On top of the coronavirus troubles, HSBC has been dealing with a flare-up in tensions between the US and China. 


The bank angered MPs, customers and investors when it supported the controversial law imposed by China on Hong Kong in June. 

The national security law drastically reduces Hong Kong citizens' rights, and makes it a crime for anyone to criticise Beijing's Communist regime. 

Quinn yesterday denied the bank would be forced to choose between its operations in the West and its more profitable business in Asia. He said: 'Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC's footprint.' 

And despite prominent pro-democracy protester Joshua Wong claiming he had faced increased questions from HSBC over his finances since the law was introduced, HSBC denied it was screening customers specifically to check whether they had pro-democracy links. 

Quinn insisted that the bank was simply complying with all laws in the jurisdictions it operates in, and refused to speculate on the possible impact which US sanctions on Chinese officials could have. 
Metro Bank has bought Ratesetter as it ramps up its efforts to expand into more profitable lending. Metro, which is trying to recover from a bleak 2019 when it swung to a £11.7m loss, will buy the online lender for up to £12m. Ratesetter matches investors who want to lend with borrowers who are in need of cash, and offers personal loans, financing for car dealers, and loans for property developers, and has handed out more than £4billion since it launched.