HSBC registers decline in profits in H1 2020

Maria Nikolova

“The first six months of 2020 have been some of the most challenging in living memory”, says Noel Quinn, Group Chief Executive.

HSBC Holdings plc (LON:HSBA) today reported its financial results for the first six months of 2020.

Reported profit after tax fell 69% year-on-year to $3.1 billion and reported profit before tax was down 65% to $4.3 billion due to increase in expected credit losses and other credit impairment charges (‘ECL’) and lower revenue. Reported profit in the first half of 2020 also included a $1.2 billion impairment of software intangibles, mainly in Europe.

In Asia, HSBC reported profit before tax of $7.4 billion for the first half of 2020 in the face of higher ECL. Higher ECL charges materially impacted profitability in HSBC’s markets across the rest of the world, notably in its operations throughout Europe.

Reported revenue was down 9% from a year earlier to $26.7 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 (‘GBM’), notably in the first quarter of 2020. These factors more than offset higher revenue in Global Markets. Reported ECL increased by $5.7 billion to $6.9 billion due to the impact of the Covid-19 outbreak and the forward economic outlook, and due to an increase in charges related to specific wholesale customers.

Common equity tier 1 capital (‘CET1’) ratio was 15.0%, up 30bps from the final quarter of 2019, as higher CET1 capital, which included an increase from the cancellation of the 4Q19 dividend and the current suspension of dividends on ordinary shares, more than offset the impact of risk-weighted asset (‘RWA’) growth.

In terms of outlook for 2020, HSBC expects that, applying a range of weightings to its ECL sensitivity analysis could result in an ECL charge in the range of $8 billion to $13 billion for 2020. This range, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, is higher than at 1Q20 given the deterioration in consensus and economic forecasts and actual loss experience during 2Q20. HSBC expects mid-to-high single-digit RWA percentage growth in 2020, primarily from credit rating migration movements, which is expected to have an adverse impact on HSBC’s CET1 ratio.

On March 31, 2020, HSBC announced that, in response to a request from the Bank of England through the UK’s Prudential Regulation Authority (PRA), the Board had cancelled the fourth interim dividend for 2019 of $0.21 per ordinary share, which was scheduled to be paid on 14 April 2020. The Board also announced that until the end of 2020 HSBC will make no quarterly or interim dividend payments or accruals in respect of ordinary shares.

The Board intends to provide an update on its dividend policy at the year-end results for 2020, when the economic impact of the Covid-19 outbreak is better understood. HSBC says it will also take into account the views of its shareholders, the interests of its other stakeholders and other factors, including its financial performance and capital position.

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