earnings reports

HSBC reports lighter-than-expected profit fall in Q3 2020

Agence France-Presse
HSBC reports lighter-than-expected profit fall in Q3 2020

In this file photo taken on April 28, 2020, commuters wearing face masks travel on a tram past HSBC signage displayed outside the bank's local headquarters in Hong Kong. - HSBC said on October 27, 2020 its third-quarter post-tax profits plunged 46 percent on-year as the Asia-focused banking giant continued to take a hammering from the coronavirus pandemic and spiralling China-US tensions. (Photo by Anthony WALLACE / AFP)


HSBC's performance in the 3rd quarter of 2020 is not as bad as some analysts had predicted

HSBC said on Tuesday, October 27, its 3rd quarter post-tax profits fell 46% on-year as the Asia-focused banking giant continued to take a hammering from the coronavirus pandemic and spiraling China-United States tensions.

However, the profit falls were not as bad as some analysts had predicted and HSBC said it expected credit losses to be at the lower end of a previously announced $8-billion to $13-billion range.

The global economic slowdown caused by the virus has hit financial giants hard and there is limited optimism on the horizon as Europe and the United States head into the winter with infections soaring once more. 

HSBC has a further headache – geopolitical tensions via its status as a major business conduit between China and the West.

As a result, the lender is in the midst of a worldwide overhaul, aiming to slash some 35,000 jobs by 2022, primarily in its less profitable European and American divisions.

“We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines towards fee-generating businesses, and further reducing our operating costs,” chief executive Noel Quinn said in a statement accompanying the results.

Reported post-tax profit for the 3rd quarter came in at $2 billion with revenue down 11% at $11.9 billion, the statement said.

Adjusted pre-tax profit slid 21% to $4.3 billion in the period, beating a $2.8-billion estimate by Bloomberg analysts.

Quinn described the latest figures as “promising results against a backdrop of the continuing impacts of COVID-19 on the global economy” as well as low interest rates. 

China and Brexit

In the first 6 months of 2020, HSBC’s post-tax profits were down 69%, meaning the 3rd quarter results were something of an improvement as some major economies relaxed some of their coronavirus restrictions.

The bank said its board would consider whether to pay “a conservative dividend” for 2020 based on final end of year results and how the global economy looks in early 2021. 

Earlier this year, United Kingdom regulators called on British banks to scrap dividends for the year to preserve capital during the pandemic crisis.

HSBC makes 90% of its profit in Asia, with China and Hong Kong being the major drivers of growth.

As a result, it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.

The bank has tried to stay in Beijing’s good graces. 

It vocally backed a tough national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests.

The move sparked criticism in Washington and London, but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.

“Geopolitical risk, particularly relating to trade and other tensions between the US and China, remains heightened,” HSBC said in Tuesday’s profit statement.

The US has sanctioned nearly a dozen key Hong Kong and Chinese officials over the national security law, telling international banks to stop doing business with them.

China’s national security law, however, forbids businesses in Hong Kong from adhering to foreign sanctions regimes, leaving many in an unclear regulatory tight spot.

“Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment,” HSBC said in its statement.

The bank also highlighted the uncertainty over Britain’s withdrawal from the European Union (EU) as another potential headwind.

Talks for a post-Brexit trade deal have made little headway with a December 31 deadline fast approaching. 

“There is a risk of additional ECL (expected credit losses) charges, particularly in the UK in [the 4th quarter of 2020], if the UK and the EU fail to reach a trade agreement,” the bank said. – Rappler.com

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