HSBC finds itself in eye of the storm
HSBC, the global banking giant, is the worst hit of the high-street banks in Britain and is facing trouble elsewhere too. Matthew Partridge reports


An unexpectedly steep plunge in earnings, with first half pre-tax profits falling by 65% to $4.3bn, has prompted HSBC to announce that it will “accelerate” the axing of 35,000 jobs, says the BBC. The bank says bad loans linked to the coronavirus could reach $13bn (£9.8bn) as more people and businesses are now expected to default on their repayments because of the pandemic. HSBC has granted more than 700,000 payment holidays on loans, credit cards and mortgages. It has also been hit by low interest rates, which squeezes profit margins on the loans it provides.
The job cuts are likely to end up going even further, says Liam Proud on Breakingviews: the investment banking business is the only part of HSBC “that’s really growing”. However, not only is investment banking “hardly a dependable earner”, but its “stellar” performance also can’t offset a “slump” in retail and commercial banking revenue. This leaves cost reductions as “the only lever available” to help HSBC achieve its goal of a 10%-12% tangible return on equity by 2022. CEO Noel Quinn will need “much more” than the 7% year-on-year reduction he’s already achieved.
A bigger headache than Covid-19
HSBC’s size means that it has been in the “eye of the Covid-19 storm” and has been hit particularly hard by government pressure to “support struggling businesses and stretched households”, says Ben Marlow in The Daily Telegraph. Still, in terms of HSBC’s long-term direction, Covid-19 is almost a “sideshow”, since the process of navigating “rising tensions” between Washington and Beijing is providing it with an “even bigger headache”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
There is “no easy fix” for the geopolitical predicament HSBC finds itself in, says Alistair Osborne in The Times. But the decision of its Asian head Peter Wong to sign a petition backing China’s intervention in Hong Kong has “cranked things right up”, as well as alienating its customers in Hong Kong, which currently account for a large chunk of profits. With the bank looking “too big to manage” a breakup seems increasingly attractive, especially as the “pretence” that HSBC can “breezily” operate in markets that “politically collide” has “slipped”.
Still, at least HSBC’s shareholders can console themselves that they are not alone in their misery, say Harry Wilson and Stefania Spezzati on Bloomberg. Write-offs at the UK’s six biggest banks so far this year “roughly equal Barclays Plc’s current market value”.
For example, Lloyds expects to set aside “between £4.5bn and £5.5bn pounds this year”, while Barclays has taken a £1.6bn impairment charge. More misery may be coming with Deutsche Bank estimating that UK banks “might book as much as £40bn in provisions over two years”. No wonder shares in HSBC, Barclays, Lloyds and NatWest “have all performed worse than their European peers this year”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'
Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuation
AEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
-
The Palace of Westminster is falling down
The Palace of Westminster is in need of repair, but the bill is prohibitive, says Simon Wilson
-
'It’s time to buy British equities'
Opinion There is no better place to start investing in UK equities than with two of MoneyWeek’s favourite investment trusts, says Max King