HSBC's After-Tax First Half Profit Drops 69%: Job Cuts, Restructuring Accelerated

HSBC Holdings plc (HSBC) has accelerated plans to lay off 35,000 workers after the megabank posted a huge profit drop for the first half of the year.

On Monday, HSBC said its after-tax profit for the first half of 2020 plunged by 69% to $3.1 billion from about $10 billion in the year-ago period, due to “higher expected credit losses and other credit impairment charges and lower revenue.”

On a pre-tax basis, profits sank by 65% to $4.3 billion from $12.4 billion.

CNBC reported analysts had been expecting pre-tax profits of about $5.69 billion.

First half results also included a $1.2 billion impairment of software intangibles, primarily in Europe.

Revenues fell by 9% to $26.7 billion from $29.3 billion, “reflecting the impact of interest rate reductions, as well as adverse market impacts in life insurance manufacturing and adverse valuation adjustments in global banking and markets.”

The bank also took out credit impairment provisions of $6.9 billion in the first half [a $5.7 billion jump from the first half of last year] “due to the coronavirus pandemic and weak economic outlook.”

“Our first half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility,” said Noel Quinn, HSBC’s group chief executive. “Despite this, our Asia franchise showed resilience, and our global markets business delivered strong growth compared with last year’s first half.”

Regarding job cuts, Quinn said that “having paused parts of our transformation program in response to the COVID-19 outbreak, we now intend to accelerate implementation of the plans we announced in February. We are also looking at what additional actions we need to take in light of the new economic environment to make HSBC a stronger and more sustainable business.”

The program announced in February called for 35,000 job cuts, the merger of HSBC’s retail banking and wealth management units, the scaling down of its European equity business and a reduction of its branch network in the U.S.

Quinn also blamed rising tensions between China and the U.S. for the bank’s woes.

Looking ahead at the rest of the year, HSBC said it continues to “face a wide range of potential economic outcomes… partly dependent on the extent of any potential impacts from new waves of COVID-19, the path to the development of a possible vaccine and market and consumer confidence levels.”

Heightened geopolitical risk, the bank added, “could also impact a number of our markets, including Hong Kong and the U.K.”

“Disagreements over trade, technology, human rights and the status of Hong Kong could result in people, sanctions, regulatory, reputational and market risk,” HSBC added.

Jackson Wong, asset management director at Amber Hill Capital, warned things could get worse for HSBC.

“We haven’t seen the bottom ... the situation or the business environment now is extremely bad for HSBC,” Wong told CNBC. “They have to face the political issues, the operational issues and also [the] low interest rates environment is going to ... remain for a little bit.”

U.S. Secretary of State Mike Pompeo and British lawmakers have also criticized HSBC for supporting China's new security laws in Hong Kong.

HSBC shares have plunged 40% so far this year.