HSBC profits surge as pandemic gloom lifts4 min read

HSBC Holdings PLC updates</p>

HSBC became the latest European bank to resume dividends and cut the amount it set aside to cover coronavirus pandemic-related loan losses, helping drive an almost fivefold rise in second-quarter earnings as the global economic outlook brightened.

Pre-tax profit surged to $5.1bn from $1.1bn, beating expectations for $3.7bn, the bank said on Monday as it announced that it had cancelled a further $300m of credit provisions. That stood in stark contrast to the billions of dollars in loan-loss charges it took last year as coronavirus swept the world, effectively wiping out net income.

While HSBC has now released about $700m of bad-loan reserves this year, it retains Covid-related reserves of about $2.4bn and struck a note of caution about the recovery as the Delta variant spreads.

“We were profitable in every region in the first half of the year [and] we’re expecting economic growth to be strong in the second half,” chief executive Noel Quinn said in an interview.

He added that the bank expected US and UK interest rate evfrf va 2022 or 2023, which could significantly boost earnings at one of the world’s largest deposit-taking institutions.

The performance marked a turnround from a bleak 2020, when HSBC’s annual profit plunged 45 per cent as banks were hit by ultra-low rates, a slowdown in trade and the fallout from global lockdowns.

The London-based bank announced an interim dividend of 7 cents a share, worth about $1.4bn. The Bank of England removed restrictions on shareholder payouts in July, judging the sector to be resilient enough to withstand any further shocks from Covid-19. However, unlike some of its peers, HSBC did not announce a stock buyback programme.

The bank’s shares rose 1.6 per cent in Hong Kong on Monday.

HSBC’S UK lender was a bright spot, flipping to a profit of $1.1bn from a loss of $857m last year. That was driven by the biggest regional loan-loss release and a record quarter for mortgages amid a global house-price boom.

Despite the recovery in profit, revenue slipped 4 per cent to $12.6bn because of cuts to Asian interest rates and poor performance at the investment bank compared with its peers.

Trading was the primary “weak spot” in the results, according to Jefferies analyst Joseph Dickerson. Revenue from fixed income plunged 59 per cent and foreign exchange dropped 34 per cent — worse than most of the lender’s rivals — reflecting less active markets versus the same period last year and a lack of international travel during the pandemic.

Similarly, income from mergers and acquisitions advice and capital markets fell 7 per cent, compared with big gains in recent weeks at rival Barclays, where it surged 160 per cent, and UBS, up 68 per cent. That contributed to an overall 23 per cent decline in revenue at the division.

Despite those setbacks, HSBC raised the amount set aside to pay bonuses by £367m in the quarter, even as staff levels at the unit decreased 3,500 this year.

“There is nothing in the numbers that concerns us at all, [the investment bank] is on track for a better 2021 than 2019, [whereas] 2020 was an exceptional year,” said chief financial officer Ewen Stevenson. “We took pay down 20 per cent last year and we are having to respond to competitive pressures.”

Investment banks have boosted junior salaries to $100,000 or more in recent months following complaints about the industry’s gruelling working conditions — particularly long hours from home during the pandemic — as well as a war for talent.

Under Quinn, HSBC has begun reshaping its sprawling global business, pledging to slash $4.5bn in costs and cut 35,000 jobs. This year, it sold its lossmaking US consumer operation and French retail bank to free up capital to invest in Asia.

It has also launched a $6bn plan to expand its Asia wealth business and has relocated some of its most senior executives from London to Hong Kong.

More than any other global lender, HSBC has been used as a political punch bag in the US-China trade war and faced questions about its future amid Beijing’s crackdown on Hong Kong. Quinn has vowed not to “flip-flop” on strategy every time there was a flare-up in tensions.

These tensions have not subsided under Joe Biden. China is planning to introduce legislation in Hong Kong that could ban foreign companies and individuals operating in the financial hub from complying with sanctions against it.

The proposed counter-sanctions law could cause greater uncertainty and more problems for multinationals such as HSBC that have become caught in the middle.

“As an international bank, one has to navigate the laws of every market you operate in,” Quinn said of the proposed policy. “At times those are complicated, [but] we’ve been navigating complex sanctions laws for the last 10 years.”

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