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”. 

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”. 

Recommended

More bad news for bank stocks
Bank stocks

More bad news for bank stocks

Stories about suspicious transactions may be overblown, but HSBC has plenty of other problems to worry about. Matthew Partridge reports
24 Sep 2020
Share tips of the week
UK stockmarkets

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
23 Apr 2021
Arm Holdings takeover: has Nvidia had its chips?
Tech stocks

Arm Holdings takeover: has Nvidia had its chips?

The takeover of Britain’s semiconductor group Arm Holdings by its US rival Nvidia could be running into the sand, says Matthew Partridge.
22 Apr 2021
Activist investor Elliott takes takes a stake in Glaxo
Biotech stocks

Activist investor Elliott takes takes a stake in Glaxo

Elliott, s US hedge fund, took an undisclosed multibillion-pound stake in GSK last week, driving the share price up by 4.6%.
22 Apr 2021

Most Popular

China owns a lot more gold than it’s letting on – and here’s why
Gold

China owns a lot more gold than it’s letting on – and here’s why

In a world awash with money-printing, a currency backed by gold would have great credibility. And China – with designs on the yuan becoming the world’…
21 Apr 2021
“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
House prices in the UK are still surging – here’s why it’ll probably continue
Property

House prices in the UK are still surging – here’s why it’ll probably continue

The latest UK house price data shows no letup in the country’s booming property market, with the biggest yearly rise since 2014. And there’s no end in…
22 Apr 2021