HSBC Holdings plc on Monday posted a staggering 65 percent year-over-year plunge in pre-tax profit for the first half of 2020 as the coronavirus pandemic hit the bank's global business. The decline is a lot larger than analysts had forecast as rising bad debt and low interest rates kept biting into the profits of the bank.
According to HSBC's Chief Financial Officer Ewen Stevenson, the bank's business in Britain was particularly hit hard due to the pandemic. Moreover, the bank has also said that it has set aside up to $13 billion for bad loans as it believes there will be more businesses that will default over the next few months.
HSBC Hit Hard
The UK's biggest bank posted pre-tax profits of $4.3 billion for the first six months of the year down from $12.4 billion reported in the year-ago period and missing analysts' expectations of $5.69 billion. HSBC's shares plummeted more than 4 percent in Hong Kong after following the news. The bank's revenue declined 9 percent to $26.7 billion during the same period, slightly above analysts' expectations of $26.41 billion, according to estimates compiled by HSBC.
HSBC's Chief Executive Noel Quinn said the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility were the primary reasons behind this decline. Moreover, HSBC warned that bad debts would likely grow in the second half of the year.
HSBC said it has set aside $8 billion to $13 billion this year for bad loans as it expects more people and businesses to default on their repayments in the coming months. This is higher than previously budgeted for, taking into account the effects of the economic downturn. The bank had set aside $3 billion to cover loan losses in the first quarter.
Crisis Deepens for HSBC
The global economic slowdown is just one of the many challenges that HSBC has been dealing with. The bank recently came under fire for supporting China in introducing the national security law in Hong Kong, while pushing ahead with a major restructuring of its global banking operations.
"Current tensions between China and the US inevitably create challenging situations for an organization with HSBC's footprint," Quinn said. The bank so far has granted over 700,000 payment holidays on loans, mortgages and credit cards, providing more than $27 billion in customer relief. Moreover, low interest rates have been narrowing its profit margin following the coronavirus outbreak.
However, the bank plans to go ahead with its restructuring plan as announced earlier. According to the plan, HSBC will slash 35,000 heads from its global workforce of 235,000. The job cuts had been put on hold following the pandemic but Quinn confirmed on Monday that it will "accelerate implementation of the plans we announced in February". The bank had also earlier said that it could wind up or sell its US retail banking operations which could involve shrinking its 224-strong US branch network by about 30 percent.