A stark warning from HSBC

HSBC reported a huge fall in profit, and and warned that it expects the global lockdown measures to lead to a run of bankruptcies and defaults.

HSBC has delivered a “stark warning” on the “deep and lasting” impact of coronavirus on the financial sector, say Stephen Morris and Primrose Riodan in the Financial Times . It reported a 48% year-on-year slump in first-quarter pre-tax profit to $3.2bn. Provisions for bad loans quintupled to $3bn as it expects the global lockdown measures to lead to a “run of potential bankruptcies and defaults”. Provisions could total $7bn-$11bn by the end of the year thanks to a severe global recession. 

The crisis is good news, at least in the short run, for the 35,000 employees who were at risk from being made redundant in the “restructuring” that was announced in February, says Simon Clark in The Wall Street Journal. HSBC has now decided that it will delay the “vast majority” of job cuts in order to “reduce the uncertainty” staff face “at this difficult time”. However, things are less rosy for shareholders as HSBC has already been forced to cancel its dividend, and has now pledged to review its dividend policy.

It’s good news that HSBC is starting to rethink its “cherished” but “rigid” dividend policy, says Liam Proud on Breakingviews.com. While HSBC is “well-capitalised” it has failed to make enough profit to cover the promised dividend in three out of the four last years. Its rivals either have“ lower fixed payouts”, which are then topped up with buybacks, or they link their dividends to earnings. Both approaches would ensure that HSBC’s shareholders are “less likely to be caught off-guard by any future crisis-induced cuts”.

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