HSBC announces earnings results for the second quarter and first half of 2020

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A pedestrian walks past illuminated signage for HSBC Holdings Plc on display outside a bank branch in the Central District of Hong Kong, China.

Anthony Kwan | Bloomberg | Getty Images

HSBC on Monday reported a 65% year-over-year decline in pre-tax earnings for the first six months of 2020 as more funds were allocated for potential loan defaults that could arise as a result of the coronavirus pandemic.

The bank, which is the largest in Europe by assets, reported pre-tax profits of $ 4.32 billion for the first half of this year – up from $ 12.41 billion reported a year ago and missed the estimated $ 5.69 billion that HSBC had compiled from analysts.

Reported revenue for the bank declined 9% to $ 26.7 billion over the same period. According to estimates by HSBC, this is slightly above analysts’ expectations of $ 26.41 billion.

HSBC stock in Hong Kong lost more than 4% when trading resumed after the lunch break.

CEO Noel Quinn said the bank was “affected by the Covid-19 pandemic, falling interest rates, increased geopolitical risks and increased market volatility”.

“The first six months of 2020 are among the most difficult in living memory. Due to the Covid-19 pandemic, a large part of the global economy has slowed down considerably and some sectors have almost completely come to a standstill, “he said in an accompanying statement about the release of the results.

He also cited the tensions between the US and China as a challenge the bank will face in the long term.

“The current tensions between China and the US inevitably create challenging situations for an organization with the HSBC presence,” he added.

Here are other financial metrics that HSBC reported:

  • Loan loss provisions rose to $ 6.9 billion due to the coronavirus pandemic and weak economic outlook;
  • Net interest margin, a measure of the profitability of lending, was 1.43% – an 18 basis point decrease from a year earlier due to lower global interest rates;
  • Operating expenses decreased 4% year over year to $ 16.53 billion.

The bank’s financial results announcement follows those of other UK banks, many of which reported declining profits. British bank Standard Chartered, which is also focused on Asia, reported a 33% profit decline to $ 1.63 billion in the first half of the year on Thursday.

Press ahead with restructuring

Quinn said the bank would “accelerate” the implementation of a planned restructuring he announced in February. At the time, the CEO said the reorganization would include merging the retail and wealth management units, reducing the European equity business and reducing the branch network in the United States

The plan, which should lead to a reduction of around 35,000 jobs, announced HSBC in February.

“We’re pushing these plans wherever we can,” said Quinn.

“At the same time, our operating environment has changed significantly since the beginning of the year. We will therefore also examine what additional need for action we have in view of the new economic environment. “

Jackson Wong, Asset Management Director at Amber Hill Capital, pointed out that the coronavirus pandemic and US-China tension are two major challenges that HSBC cannot do much about. That means there may still be wiggle room in the bank’s finances impact, he said.

“We haven’t seen the bottom … the situation or the business environment is now extremely bad for HSBC,” Wong told CNBC’s Capital Connection after the bank’s results were released.

“You have to face the political problems, the operational problems and also the low interest rate environment … will be around for a while,” he said, adding that he was in no rush to buy HSBC stock even though it was “extremely” is cheap “now.

This year, HSBC shares listed in Hong Kong and London are down more than 40% according to refinitive data.

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