HSBC reveals loan losses could hit £9bn as first quarter profits plunge
Banking giant HSBC has seen first quarter profits almost halve as it set aside soaring costs for bad debts and warned loan losses could hit 11 billion US dollars (£9 billion) this year.
The group reported a 48% slump in pre-tax profits to 3.2 billion dollars (£2.6 billion) for the first three months of 2020.
Its profits were slashed as it set aside 3 billion dollars (£2.4 billion) for bad loans, up 417% on a year earlier, as Covid-19 and the oil price crash hammers the global economy.
But it alerted that a “severe” Covid-19 scenario impact on the worldwide economy could see full-year loan provisions rise to between 7 billion dollars (£5.6 billion) and 11 billion dollars (£8.9 billion).
It added that while it is cutting costs, it is expecting “materially lower profitability in 2020”, with income likely to be knocked further if coronavirus continues to wreak havoc on the global economy over the year.
The warning came as it confirmed a previous announcement to put its mammoth redundancy programme on ice.
It said it was putting the “wellbeing” of its staff first during the crisis and pausing plans to axe 35,000 jobs globally, including planned cuts among its 40,000-strong workforce in the UK.
Noel Quinn, group chief executive, said: “The economic impact of the Covid-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year.
“The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit before tax compared with the same period last year.”
He added: “I take the wellbeing of our people extremely seriously.
“We have therefore paused the vast majority of redundancies related to the transformation we announced in February to reduce the uncertainty they are facing at this difficult time.”
It had been due to cut more branch-based UK workers and take the axe to its investment banking division in London.
HSBC’s large Asian business was particularly badly impacted by coronavirus in the first three months of the year, with China – where the pandemic originated – the first to go into lockdown.
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said HSBC’s results showed the bank was holding up well, but will face “difficult times ahead”.
He said: “The pain from lower interest rates will mount as fixed loans roll-off, and reduced economic activity is also likely to bite in the trade finance and commercial banking businesses.
“If conditions get worse from here provisions for bad loans will increase, and together with credit downgrades that will eat into capital reserves.”