HSBC Holdings PLC (LON:HSBA) saw its shares fall on Monday as the Asia-focused bank reported a 65% drop in first-half pre-tax profit as the coronavirus pandemic and its impact on businesses forced it to hike bad debt provisions.
The FTSE 100-listed lender posted a pre-tax profit of $4.32bn for the half-year to June 30, 2020, down from $12.41bn and below the analyst consensus estimate of $5.67bn.
The bank’s credit impairment provisions in the first-half soared to $6.9bn, up from $1bn in the first half of 2019 and from $3bn in the first quarter of 2020.
HSBC said its total provisions against bad debts could be between $8bn to $13bn in 2020, higher than it forecast in April due to the deteriorating global economic outlook and worse-than-expected actual losses in the second quarter.
The bank also warned it expects a hit to its core capital this year as falling credit ratings impact its risk-weighted asset ratio, although HSBC’s core CET-1 capital ratio, a key measure of financial strength, rose to 15% at the end of June thanks to favourable regulatory changes.
The lender, Europe’s biggest bank by assets, saw its revenues fell by 9% in the six-month period, as global interest-rate cuts and declining market values on assets in investment banking and insurance outweighed higher income from its trading business.
In the results statement, HSBC CEO Noel Quinn said: “Given the current high degree of uncertainty, we are continuing to monitor closely the implications on our business plan and medium-term financial targets, while also undertaking a review of our future dividend policy,”
He added: “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.”
In early trading, HSBC shares were 4.5% lower at 326.85p.
Additional issues to face
Richard Hunter, head of markets at interactive investor, commented “HSBC has done little to lift investors’ spirits as it brings the curtain down on what has been a costly half-year reporting season for banks in general.
"Even though its Asian operations reported a pre-tax profit of $7.4 billion, the overall number for the group was $4.3 billion, representing a decline of 65% year-on-year. Also, despite a sturdy performance from the Global Banking and Markets division, overall revenues dropped by 9%, impeded by lower interest rates and generally adverse market impacts."
He added: 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.
"This is quite apart from the pandemic, which has blighted so many companies globally, and within the economic framework the banks are directly in the firing line. HSBC has taken the decision to increase its credit impairment charge to $6.9 billion from $3 billion at the first quarter stage, and based on its projections has guided that the full-year number could sit anywhere between $8 and $13 billion."
Hunter concluded: "Banks in general are much better prepared for this economic onslaught than during the financial crisis of over a decade ago. For HSBC in particular, any early economic recovery in the Asian region would play into its hands given its established presence and reputation.
"Even so, 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."
-- Adds share price, broker comment --