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HSBC profits slammed by COVID-19 and heightened US-China tensions

HSBC said profits sunk by 69 per cent for the first half of the year, as the banking giant was slammed by the COVID-19 pandemic and spiralling tensions between the U.S. and China.

The bank reported post-tax profits of US$3.1 billion while pre-tax profit was US$4.3 billion, down 64 per cent on the same period last year.

Reported revenue fell by nine per cent to US$26.7 billion.

Chief executive Noel Quinn defined this years first six months as “some of the most challenging in living memory”.

“Our first-half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility,” he said in a statement to the Hong Kong stock exchange, HSBC has had a torrid year, even by the standards of the latest economic maelstrom that engulfs global banks.

Before the coronavirus crisis, it was beset by weak profit growth, grounded by concerns surrounding the US-China trade war and Britain’s withdrawal from the European Union.

At the beginning of the year, the Asia-focused lender launched a major cost-cutting initiative, including plans to cut some 35,000 jobs as well as removing excess fat from less profitable business units, mainly in the United States and Europe.

The coronavirus sparked some of that cost-cutting drive with banks slammed by market uncertainty and the pandemic-induced economic slowdown.

But HSBC has further problems – geopolitical tensions with its role as a significant business conduit between China and the West. HSBC accounts for 90 per cent of its profit in Asia, with China and Hong Kong being the key drivers of expansion.

As a result, it has found itself more vulnerable than most to the crossfire created by the increasingly bellicose rivalry between Beijing and Washington.

The bank has managed to remain in the good graces of Beijing.

It vocally endorsed a draconian national security law imposed by Beijing on Hong Kong in June to end a year of unrest and pro-democracy demonstrations.

The move prompted outrage in Washington and London, but analysts saw it as an effort to secure its access to China, which has a track record of punishing businesses that do not toe the line that Beijing sets.

But that has not protected it from the wrath of Beijing.

Last month, the bank was a subject of several reports in China’s state-run media alleging that it had helped to supply the evidence that led to the arrest of Huawei executive Meng Wanzhou on a US arrest warrant in Canada.

HSBC issued a statement on its Chinese Weibo accounts saying it did not “frame” telecom giant Huawei or “fabricate evidence” that led to Meng’s arrest.

Within hours of release, China’s internet censors blocked links to HSBC’s statement, without explaining in Monday’s announcement.

Quinn referenced the bank’s growing political vulnerability.

“Existing tensions between China and the US inevitably build challenging situations for an organisation with HSBC’s footprint,” he said.

“However, the need for a bank capable of bridging the economies of East and West is acute, and we are well placed to fulfil this role,” he added.

The bank’s Asian operations continued to demonstrate “good resilience”, Quinn said, with US$7.4 billion in profit before tax.

Quinn put some of the job cuts on hold earlier this year, as the pandemic hit.

But in the statement on Monday he vowed to push ahead with the cost-cutting.

“As we seek to accelerate our transformation in the second half of the year, I am mindful of the impact it will have for some of our people, particularly those leaving us,” he said.

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