HSBC H1 profits fall 65% amid coronavirus disruption

HSBC has suffered a 65 per cent drop in pre-tax profit in the first half of the year as Europe's largest bank was struck by a dive in interest rates and coronavirus disruption.

HSBC said its future dividend policy would be reviewed. Picture: Kirsty O'Connor.

The bank reported profits of $4.3 billion (£3.2bn) in the half year to 30 June, down from $12.4bn in the same period in 2019. The lender has endured a torrid year on the markets with the London-listed shares falling more than 40 per cent from 595p to 342p as of 30 June.

Group chief executive Noel Quinn said: "Our first-half performance was impacted by the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility."

He put the brakes on a wide-ranging redundancy programme as the coronavirus took hold, but plans to cut around 35,000 jobs worldwide will be accelerated.

The company will also look at other measures to take "in light of the new economic environment to make HSBC a stronger and more sustainable business", Quinn said in the half year results.

HSBC, along with other banks, complied with a Bank of England request to shelve dividends for shareholders on 1 April, with the bank saying it would not make payouts or have share buy-backs until the end of 2020.

In its update HSBC, said its future dividend policy would be reviewed and added: "Lower global interest rates and reduced customer activity have put increasing pressure on revenue, and are expected to continue to do so." The company set aside provisions for credit losses of $3.8bn in the quarter ending 30 June, up from $555 million in the same period last year.

Continuing tension between the US and China, and discussions over the shape of Brexit will continue to have an impact on performance, according to the report. It said: "Our performance in the second half of the year will continue to be influenced by the path and economic impact of the Covid-19 outbreak.

Uncertainty

"Geopolitical uncertainty could also weigh heavily on our clients, particularly those impacted by heightened US-China and UK-China tensions, and the future of UK-EU trade relations."

The bank, although headquartered in the UK, makes most of its profit in Asia and Quinn acknowledged the geopolitical risk in the region. He said: "Current tensions between China and the US inevitably create challenging situations for an organisation 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."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “HSBC follows the recent trend, with massive provisions for future bad loans knocking profits hard in the first half. There’s likely more of that to come, and with low interest rates dragging on revenues full year profits will not be pretty.

"However, the bank’s made progress on cost control despite pausing redundancies during the peak of the crisis, and with the transformation plan expected to pick up pace from here that should soften the blow to the income statement. Meanwhile the suspension of the dividend, while a blow to shareholders, has strengthened the balance sheet.

"Having been confirmed as HSBC’s permanent CEO in March, Noel Quinn’s update to the bank’s medium-term financial targets and dividend policy at the full year will make for interesting reading. Low interest rates are a headwind that’s here to stay, and a shrinking investment bank makes that more of a challenge. We wouldn’t be entirely surprised if that fed through into reduced ambitions on profitability and maybe even a rebased dividend.”

SCOTSMAN.COM

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