Coronavirus: HSBC sets aside $3bn as credit losses expected to soar

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
General view of the HSBC bank, which is closed to the public, at Avenue des Champs Elysees, in the 8th quarter of Paris on March 16, 2020 in Paris, France. (Edward Berthelot/Getty Images)

HSBC (HSBA.L) has paused lay offs and set aside $3bn (£2.41bn) to cover an expected surge in bad loans, as the bank feels the impact of the COVID-19 pandemic.

HSBC said on Tuesday it set aside $3bn in the first quarter of 2020 to cover expected credit losses. That marked a huge surge from the $585m set aside in the same quarter last year and was far higher than analysts had expected.

Chief executive Noel Quinn told journalists these were “clearly unprecedented and challenging times”, with the pandemic causing “huge disruption, stress, and uncertainty” around the world.

HSBC said it would likely have to set aside even more money to cover expected losses as the COVID-19 pandemic continues and could end up reserving $7bn to $11bn to cover credit losses in 2020 if the pandemic persists. HSBC warned profits will be “materially lower” this year as a result.

The surge in loss provisions caused quarterly profits to almost halve at the bank. Pre-tax profit dropped 48% in the first quarter to $3.2bn.

“The economic impact of the COVID-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year,” said Quinn.

“The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit before tax compared with the same period last year.”

Revenue in the first quarter fell by 5% to $13.6bn, but was better than analysts had expected. Return on tangible equity, a key measure of bank performance, fell to 4.2%, which was worse than analysts had expected.

Shares were trading 0.6% higher in Hong Kong (0005.HK) but fell 1.6% in London.

Quinn said the lender would pause redundancies in light of the pandemic. Quinn announced a sweeping restructure of the bank in February, signalling 35,000 jobs would be cut.

“I take the well-being of our people extremely seriously,” Quinn said on Tuesday. “We have therefore paused the vast majority of redundancies related to the transformation we announced in February to reduce the uncertainty they are facing at this difficult time.

“We continue to press forward with the other areas of our transformation with the aim of delivering a stronger and leaner business that is better equipped to help our customers prosper in the recovery still to come.”

HSBC said 80% of its branches remain open around the world but around 90% of its staff are now working from home.

HSBC cautioned there was “significant uncertainty over the path of the pandemic, the range and duration of economic impacts (including the effects of various government support packages), and its impact on customers' ability to repay their debt obligations”.