The pandemic and escalating frictions between China and the U.S. dealt a heavy blow to HSBC in the first six months of the year, with pre-tax sales dropping 65 percent to $4.3 billion. The amount for the first half to end of June came in well below initial estimates of analysts, who had anticipated that the British banking institution would earn $5.67 billion during the period.
The Asia-focused lender on Monday disclosed that its financial performance was heavily affected by market instability, low interest rates, rising geopolitical risks, and the ongoing pandemic. While HSBC is based in London, over 50 percent of the group's profits are derived from the Asian financial center, Hong Kong.
HSBC stated that it has allocated around $8 billion to $13 billion this year for bad debt charges as the lender sees more people and companies default on their debt obligations, which reflects worse-than-predicted losses in the first half and estimates of a steeper drop in the economy.
The British lender has been looking into pivoting away from the U.S. and Europe to grow its presence in mainland China, with the country welcoming investors to its booming capital markets. HSBC has also been singled out for its support of Beijing by U.S. officials.
Chief Executive Officer Noel Quinn said that the frictions between Washington and Beijing "inevitably create challenging situations for an organization with HSBC's footprint," Harry Wilson and Alfred Liu quoted Quinn as saying in a Bloomberg report.
Quinn applied the brakes on a broad range of redundancy programs as the pandemic took hold. However, proposals to slash approximately 35,000 jobs – from a global headcount of 235,000 as part of a major restructuring divulged in February – will be fast-tracked. HSBC will also evaluate other steps amid a new economic landscape to make the bank a more robust and sustainable business, Quinn pointed out.
HSBC's business in Europe has been pummeled particularly hard, as the group took a $1.5 billion charge against expected credit losses, Chief Financial Officer Ewen Stevenson said. While its results received a boost from bigger sales from fixed-income trading, market observers noted investors were likely to be dismayed by the higher outlook in bad debt penalties.
Last month, Quinn told over 200 of the bank's most senior officials that they needed to strengthen returns, sources with knowledge of the matter disclosed. In an attempt to accelerate transformation, Quinn is looking for additional authority to be given to regional managers, sources who requested anonymity added.
