HSBC has announced plans to accelerate its job cuts after interim profits dramatically fell. The bank blamed bad loans linked to the COVID-19 pandemic.
The cost of the bad loads could reach more than $13bn worldwide.
As a result, the planned 35,000 job cuts will begin immediately, with the total numbers and regions of the losses to be announced in due course.
HSBC Chief Executive Noel Quinn said: “Our operating environment has changed significantly since the start of the year.
“We will face any political challenges that arise with a focus on the long-term needs of our customers and the best interests of our investors. Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC’s footprint.
“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.”
HSBC had already set aside between more than $10bn to cover the bad loans, but the bank expects more people and businesses to default on their repayments due to the COVID-19 crisis.
Europe’s biggest bank reported a 65% drop in pre-tax profits to $4.3bn for the first half of the year.
HSBC reported revenue of $26.7bn in the first half, down 8.9%. That reflects a decline in net interest income and the impact of market movements on the bank’s life insurance operations, partially offset by a stronger result in the investment bank’s trading business. Profit before tax fell 65.2% to $4.3bn as impairments charge for bad loans rose to $6.9bn.
The bank is accelerating transformation plans announced in February, including redundancies, reducing the investment bank and combining back-office functions.
The shares fell 3.9% in early trading yesterday following the announcement.
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown
HSBC follows the recent trend, with massive provisions for future bad loans knocking profits hard in the first half. There’s likely more of that to come, and with low interest rates dragging on revenues full year profits will not be pretty.
However, the bank’s made progress on cost control despite pausing redundancies during the peak of the crisis, and with the transformation plan expected to pick up pace from here that should soften the blow to the income statement. Meanwhile the suspension of the dividend, while a blow to shareholders, has strengthened the balance sheet.
Having been confirmed as HSBC’s permanent CEO in March, Noel Quinn’s update to the bank’s medium term financial targets and dividend policy at the full year will make for interesting reading. Low interest rates are a headwind that’s here to stay, and a shrinking investment bank makes that more of a challenge. We wouldn’t be entirely surprised if that fed through into reduced ambitions on profitability and maybe even a rebased dividend.