HSBC posts sharp fall in profits and warns of ‘challenging’ US-China tensions

HSBC posts sharp fall in profits and warns of ‘challenging’ US-China tensions

HSBC said on Monday that escalating tensions between China and the West are creating “challenging situations” for its business after the global bank reported a 65% plunge in profits in the first half of 2020 due to the coronavirus pandemic.

The London-based lender, which makes most of its money in Asia, said Monday that pre-tax profit in the first six months of the year fell 65% to $4.3 billion compared to the same time last year, as revenue fell, the coronavirus crisis hit and credit losses were worse than expected.

CEO Noel Quinn said US-China tensions had so far not had a material impact on earnings but he acknowledged that “current tensions between China and the US inevitably create challenging situations for an organization 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,” he added.

The bank warned that expected credit losses for 2020 could hit as much as $13 billion this year, worse than earlier estimates “given the deterioration in consensus economic forecasts.”

The company also disclosed a $1.2 billion writedown due to an “impairment of software intangibles, mainly in Europe.”

Falling income didn’t help either. The bank’s revenue tumbled 9% in the first half versus the same time last year, hurting profits even more.

HSBC shares in Hong Kong closed down 4.4% following the earnings report to 33 Hong Kong dollars (about $4.3), its lowest price since March 2009, according to data provider Refinitiv. Its London-listed shares fell 5.6%.

The bank’s stock in London and Hong Kong are both down more than 40% so far this year.

Prior to the pandemic, HSBC had already been going through severe financial challenges. It announced in February that it would cut around 35,000 jobs and dramatically overhaul its business after profit had plunged by a third in 2019.

Then the coronavirus crisis got worse. The bank suspended most of its restructuring plans earlier this year, saying it hoped to reduce uncertainty for employees amid the pandemic.

Now, Quinn said, the bank will have to “accelerate” those plans, as well as review “what additional actions we need to take in light of the new economic environment to make HSBC a stronger and more sustainable business.”

Worsening relations between China and the West have also put HSBC in a tight spot.

Chinese state media, for instance, has accused HSBC of colluding with the United States in its legal fight against Huawei, the Chinese tech giant. The bank last week denied those allegations.

Asked about US-China tensions on an analyst call Monday, Quinn stressed that the bank had not seen “any material impact” from the issue on its business in the first half of the year.

Chinese state media has previously suggested that the bank could appear on a long-rumored list of “unreliable” foreign companies that China could blacklist. The bank has also been floated as a potential target for retaliation by Beijing in its battle with the West over trade, technology and national security.

“It’s not right or proper for me to speculate on what may or may not happen with regard to sanctions,” Quinn said. “But I come back to, we’ve seen a very strong performance in the first half of this year from our business in Asia.”

The company pulled in $7.4 billion in pre-tax profits in Asia over the first half, “demonstrating the strength and continued resilience of our operations in the region,” HSBC said.

Chief Financial Officer Ewen Stevenson added that the bank would look out for a number of factors in the second half, including US-China tensions and “any impact this has on our Hong Kong franchise.”