HSBC's Profit Falls but Lower Provisions Boost Recovery Hopes -- Update
By Simon Clark
LONDON -- HSBC Holdings PLC's net profit fell in the third
quarter as the coronavirus ravaged the global economy and political
tensions between the U.S. and China intensified over Hong Kong.
The London-based bank with Asian roots said net profit fell 54%
to $1.36 billion in the three months ended Sept. 30, from $2.97
billion in the same period last year. HSBC set aside $785 million
in provisions for bad loans in the quarter, less than a third of
the amount set aside in the previous three months.
In addition to navigating the pandemic, HSBC is embroiled in a
political clash between Beijing and Washington over the status of
Hong Kong. When HSBC's top Asia executive endorsed China's
extension of a national-security law to the port city in June,
Secretary of State Mike Pompeo described the act as a "show of
"Geopolitical risk, particularly relating to trade and other
tensions between the U.S. and China, remains heightened," HSBC said
Tuesday. "Investor and business sentiment in some sectors in Hong
Kong remains dampened and ongoing tensions could result in an
increasingly fragmented trade and regulatory environment."
HSBC also angered Chinese authorities by sharing information
about Chinese telecommunications-equipment company Huawei
Technologies Co. with U.S. prosecutors in 2016. Investors are
concerned the bank could be put on an "unreliable entities" list in
China that would threaten its plans to expand its retail and
commercial banking in the world's most populous nation.
Such a move by Chinese authorities would complicate HSBC Chief
Executive Noel Quinn's strategy of refocusing the bank on its Asian
heartland, where it makes most of its profit. Mr. Quinn said in
February that he plans to shed 15% of the bank's 235,000-strong
workforce by cutting business lines and customer relationships in
the U.S. and Europe. HSBC was founded in Hong Kong in 1865 and
moved its headquarters to London in the 1990s.
HSBC's decadeslong strategy of expanding across Europe, Asia and
the Americas is "defunct," Manus Costello, a banking analyst at
Autonomous in London, wrote in a note in September. "The intention
to generate profits from outside Asia has largely failed."
Shares of HSBC have fallen 46% this year and recently touched a
25-year low. Many other bank stocks have tumbled as the coronavirus
wreaked economic damage and forced central banks to slash interest
rates, which makes it harder for lenders to earn profit. The Stoxx
Europe 600 Banks index has fallen 39% this year. HSBC shares on
Tuesday rose 5.3% in Hong Kong.
Mr. Quinn said the third-quarter results were promising because
of the lower credit losses and strong capital and liquidity
The bank said it may pay a "conservative dividend" for 2020 if
regulators permit it. The Bank of England this year told U.K. banks
not to pay dividends to conserve cash during the pandemic.
HSBC set aside $3.83 billion and $3 billion in provisions for
losses from loans in the first and second quarters, respectively,
making a total of $7.64 billion so far this year. There is a risk
of additional fourth-quarter provisions if the U.K. and European
Union fail to reach a trade agreement by the end of the year, HSBC
Write to Simon Clark at firstname.lastname@example.org
(END) Dow Jones Newswires
October 27, 2020 04:42 ET (08:42 GMT)
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