HSBC leadership said Monday that uncertainty surrounding the coronavirus, Brexit negotiations and trade tensions between the U.S. and China are setting the scene for an unpredictable second half of the year following a shaky second quarter in which profits sharply declined.
Ewen Stevenson, chief financial officer of HSBC, said because of the multiple variables, it’s too early for the firm to discuss its distribution policy or medium-term return targets, and he doesn’t expect to do so until February when the full-year results are presented.
“We’ll have had another six months on geopolitics, and I think you’d have a much better grounded view of what, if any, impact that’s having on our business. … We don’t want to come out with definitive statements until we’ve got more clarity on the economic outlook,” Stevenson said.
Noel Quinn, CEO of HSBC, said given the unpredictable global economy, he’s satisfied with the firm’s financial performance in the first half of the year. HSBC earned $1.1 billion in the second quarter, down 82.4% from the second quarter of 2019’s profit of $6.2 billion. Net interest income was $6.9 billion, down 11.3% year-over-year, and net fee income was $2.8 billion, down 9.5% year-over-year. Meanwhile, total operating expenses last quarter were $8.7 billion, down just 2.8% year-over-year.
So far this year, HSBC has provided around $52 billion of relief to wholesale customers and $30 billion of relief to retail customers through loans, including those facilitated by the U.S. government, and payment deferrals.
Quinn said the financial performance of the first half of the year was supported by HSBC’s business in Asia, which Quinn said “remains robust” because of the quality and strength of the firm’s business and client list and the region’s quick response to COVID-19.
Loans in Asia were up $3 billion, or 1%, compared to the first half of 2019, to a total of $475 billion, and deposits were up $47 billion, or 7%, to a total of $723 billion.
Quinn declined to speculate on what actions the U.S. or Chinese governments may take in the coming months, saying it would be inappropriate for him to comment on sanctions. He said only that the firm plans to respond to any changes as they arise and that it is committed to supporting its customers across all geographies.
“At the end of the end of the day, I’m a banker, not an economist or a politician, but clearly there are potential impacts on general economic confidence from any form of trade tensions, and that will have an impact on all financial institutions,” Quinn said.
However forces outside the bank play out, HSBC is also forging ahead with the restructuring plans it unveiled in February, which includes 35,000 job cuts and a goal of cutting costs by $4.5 billion. The CEO had set a target of cutting $1 billion in expenses in 2020 alone, but with $300 million cut in the first half of the year and an estimated $500 million of cuts expected in the second half, HSBC will likely fall short of that goal.
Quinn said the company intends to make up any difference between projected and actual cost savings in 2021.
Stevenson said the coronavirus has also opened some opportunities to rethink how HSBC works, such as the impact on the bank’s commercial real estate portfolio and how much travel is necessary for employees to do their jobs.
He added that the pandemic has also accelerated customers’ adoption of HSBC’s digital platforms.
“Time will tell how permanent some of this is, but … I think that will allow us to think more carefully over the medium term about some of our assumptions around the mix between physical and digital distribution,” Stevenson said.