HONG KONG / LONDON (Reuters) – HSBC Holdings PLC HSBA.L On Tuesday, he warned of an upcoming profit increase after first-quarter profit nearly halved as he set aside $ 3 billion in bad debt provisions due to the coronavirus pandemic.
Europe’s largest bank said the outbreak will put continued pressure on its revenue as customer activity declines and lower interest rates squeeze margins, while noting that increased fraud activity could result in “potentially significant” credit losses.
The bleak outlook, shared by many lenders reporting profits this season, underscored the scale of the problems the sector faces as it grapples with corporate borrowers in crisis, plunging stock and oil prices, as well as low interest rates.
New HSBC chief executive Noel Quinn faces additional hurdles as plans to cut costs through layoffs – as part of a larger restructuring unveiled in February – were put on hold due to the pandemic.
The bank increased its expected credit impairment charges for January-March from $ 2.4 billion to $ 3 billion – its highest quarterly level in nine years – and said total provisions for the year could range from $ 7 billion to $ 11 billion.
“No one really knows how the coronavirus will develop over the next three to six months and what scenarios will play out. It is very important for us to be prepared for all scenarios – the optimistic and the less optimistic, ”Quinn told Reuters.
“Only time will tell where in that range we fall. “
Pre-tax profit for the quarter fell 48% to $ 3.2 billion, below analysts’ average forecast of $ 3.7 billion compiled by the bank. Revenue fell 5% to $ 13.7 billion.
Results were also affected by lower oil prices as well as “a significant charge related to corporate exposure in Singapore,” he said.
HSBC did not name the company, but the lender is one of the main creditors of Singapore oil trader Hin Leong Trading (Pte) Ltd, which sources say is under court oversight to restructure billions of dollars in debt following the collapse in the price of oil.
Hin Leong declined to comment on his debt restructuring.
HSBC London shares fell 1.4% on Tuesday morning, after its Hong Kong-listed shares 0005.HK earlier rose 0.4%, trailing a more than 1% increase in the benchmark Hang Seng .HSI.
“I think the management team is doing well under the circumstances,” said Hugh Young, Managing Director of Aberdeen Asset Management Asia, one of HSBC’s 20 largest shareholders.
IMPACT OF THE GLOBAL RECESSION
HSBC, which, along with other UK banks, this month announced the suspension of dividend payments after pressure from the regulator to retain capital, said it would reconsider the decision at the end of the fourth quarter.
Analysts, however, said the bank may look to permanently alter its dividend payouts, a source of pull for the stock for a long time but a burden on the bank when times get tough.
“We see increasing scope for the current $ 0.51 to be permanently rebased in 2021,” Barclays analysts said.
The London-based bank, which generates most of its profits in Asia, said it plans to cut operating costs to mitigate the drop in revenues expected to lead to “significantly lower” profitability in 2020 than last year.
In February, HSBC announced plans to cut 35,000 jobs. While many of those layoffs have been put on hold to avoid disruption and prevent staff from finding work elsewhere, Quinn has cut some high-level positions and reshuffled others as he tried to prune the structure of the company. complicated HSBC management.
The bank, however, reiterated that it would continue with plans to shift capital from underperforming companies and cut other costs.
HSBC’s significantly higher loan loss provisions follow similar actions taken by US lenders this month. The four largest U.S. banks have set aside $ 14.2 billion in loan loss provisions, with the investment bank’s sales and trading income being the only silver lining as frenzied markets around the world have drives up commissions.
Rival UBS UBSG.S was one of those who profited the most from this ray of hope, and on Tuesday it saw a 40% increase in profits as ultra-rich clients reshuffled their portfolios to cope with the virus outbreak.
Reporting by Sumeet Chatterjee and Lawrence White; edited by Edwina Gibbs