HSBC Holdings PLC has warned of more coronavirus-fuelled earnings pain, after first-quarter profit nearly halved and it warned of more loan losses, boosting provisions for bad loans to its highest in almost nine years.
HSBC also said on Tuesday the coronavirus pandemic would mean sustained pressure on its revenues as customer activity declined and lower central bank interest rates squeezed margins.
The United Kingdom-based bank, which is Europe’s biggest bank by assets, added that a rise in fraudulent activity could lead to “potentially significant” credit losses.
“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,” Chief Executive Noel Quinn said in a statement. “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.”
Profit before tax came in at $3.2bn for January-March, down from $6.2bn a year ago and below an average analyst forecast of $3.7bn compiled by the bank.
The bank increased its expected credit impairment charges by a hefty $2.4bn to $3bn due to the effects of COVID-19 and weakening oil prices as well as “a significant charge related to a corporate exposure in Singapore”, it said.
HSBC did not name the Singaporean company, but the lender is among leading creditors to Singapore oil trader Hin Leong Trading (Pte) Ltd, which sources have said is under court-appointed supervision to restructure billions of dollars in debt following the collapse of the oil price.
Hin Leong has declined to comment on its debt restructuring.
HSBC plans to reduce its operating costs to try and mitigate the fall in revenue, leading to “materially lower” profitability in 2020 than last year, it said in the earnings statement.
HSBC Chief Financial Officer Ewen Stevenson told Reuters news agency the bank expected a lower credit loss rate for rest of the year compared with the first quarter.
HSBC’s sharply higher loan loss provisions follow similar moves by US lenders this month, as banks brace for the impact of a global recession on their borrowers.
The top four US banks set aside $14.2bn in loan loss provisions, with sales and trading revenue from investment banking the only silver lining as frenzied markets worldwide drove up commissions.
European peer Credit Suisse also reported a $1bn increase in bad loan provisions last Thursday, although that was cushioned by a bumper return from its trading arm.
HSBC said last week it is pressing ahead with plans outlined in February to shift capital from underperforming businesses, reduce costs and strip out layers of management.
While many planned job redundancies have been paused to avoid disruption and leaving staff unable to find work elsewhere, CEO Quinn has cut some top-level jobs and reshuffled others as he tries to prune HSBC’s complicated management structure.