HSBC warns credit losses may swell to US$11 bil this year

LONDON: HSBC Holdings Plc cautioned bad loan charges may climb to as much as US$11 billion this year, the highest since the last financial crisis as the coronavirus pandemic halts economic activity around the world.

Adjusted profit slumped 51% and expected credit losses surged to US$3 billion in the first three months of the year, driven in part by a Singaporean client exposure, according to its earnings statement Tuesday. The Asia-focused bank also pushed back parts of its restructuring programme until at least till the end of 2020.

Newly appointed Chief Executive Officer Noel Quinn’s plan to boost profitability at Europe’s biggest lender is being curtailed by the virus outbreak that has also shaken peers worldwide. Even as turbulent markets boosted trading income, the biggest banks in the US set aside about US$25 billion in the quarter to cover bad loans, while loan losses are also mounting in Europe.

HSBC estimated that expected credit losses may reach US$7 billion to US$11 billion this year. That will result in “materially lower profitability” in 2020, which will be cushioned by lower expenses.

“The impact will vary by sectors of the economy, with heightened risk to the oil and gas, transport and discretionary consumer sectors,” according to HSBC.

“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,” Quinn said in the statement.

The credit losses included a significant charge in Singapore, where the bank is on the hook for a US$600 million loan to a failed oil trader. HSBC didn’t name the borrower in the earnings release.

Bloomberg News has reported that HSBC is the largest creditor of Singapore’s Hin Leong Trading (Pte) Ltd, according to a presentation.

At the behest of UK regulators, London-based, Asia-focused HSBC has cancelled its dividend, angering key investors in Hong Kong and sending its shares down to an 11-year low this month. Quinn has been forced to delay key parts of a restructuring program announced in February, which included about 35,000 job cuts, combining business areas and an accelerated shift to Asia to lift profits.

The bank’s medium-term financial targets will be assessed during 2020, it said. The dividend will be also be reviewed this year.

HSBC makes the bulk of its profits and revenue in Asia and is the largest foreign lender operating in China.

Earnings highlights:

  • Adjusted pretax: US$3.02b vs US$6.25 billion year earlier
  • Adjusted revenue: US$13.3 billion vs $14.1 billion year earlier
  • CET1 ratio: 14.6% vs 14.7% in 4Q