HSBC profit slump adds to bank sector coronavirus woes

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Updated 04 August 2020

HSBC profit slump adds to bank sector coronavirus woes

  • London-based bank reports massive slump in net profit, plans to slash 35,000 jobs

LONDON: HSBC on Monday reported a 69-percent slump in net profit, joining a number of major banks whose earnings have been slammed by the coronavirus fallout.

HSBC announced earnings of $3.1 billion compared with almost $10 billion in the first 6 months of 2019, as spiraling China-US tensions also hurt the British-based but Asia-focused lender.

Alongside HSBC results, top French bank Societe Generale on Monday announced a second quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans. UK banks Barclays, Lloyds and NatWest all last week reported huge financial hits linked to the pandemic’s fallout.

But there have been some bright spots, with French bank BNP Paribas weathering the coronavirus storm in the second quarter with only a small dip in net profits thanks to a surge in investment banking.

Credit Suisse meanwhile saw net profit jump almost a quarter in the April-June period, also on investment banking gains.

HIGHLIGHT

$1 BILLION - Alongside HSBC results, top French bank Societe Generale on Monday announced a second-quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans.

“HSBC has done little to lift investors’ spirits as it brings the curtain down on what has been a costly half-year reporting season for banks in general,” noted Richard Hunter, head of markets at Interactive Investor.

Even though banks “are much better prepared for this economic onslaught than during the financial crisis of over a decade ago ... the immediate outlook is bleak,” he added.

HSBC said that its pre-tax profit slid 64 percent to $4.3 billion in the first half while revenue was down 9 percent at $26.7 billion.

The figures missed analyst forecasts and the bank also raised its estimate for 2020 loan losses to $13 billion from $8 billion.

CEO Noel Quinn described the first 6 months of the year as “some of the most challenging in living memory.” He added: “Our first-half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”

Even by the standards of the current economic maelstrom engulfing global banks, HSBC has had a torrid time.

Before the coronavirus crisis it was beset by disappointing profit growth, ground down by US-China trade war uncertainties and Britain’s departure from the European Union.

The London-headquartered bank embarked on a huge cost-cutting initiative at the start of the year, including plans to slash about 35,000 jobs as well as trimming fat from less profitable divisions, primarily in the United States and Europe.

The coronavirus upended some of that cost-cutting drive with banks hammered by market volatility and the economic slowdown caused by the pandemic.

But HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.

HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.

As a result it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.

The bank has tried to stay in Beijing’s good graces. It vocally backed a draconian national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests. The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.

But that has not shielded it from Beijing’s wrath. Quinn referenced the bank’s growing political vulnerability in Monday’s results statement.

“Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint,” he said.

“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,” he added.


Creditors take action against Al Jaber in decade-long saga

Updated 49 min 25 sec ago

Creditors take action against Al Jaber in decade-long saga

  • The downturn in the Gulf construction sector has triggered a number of corporate restructurings as companies are forced to reschedule debt, raise fresh borrowing or enter insolvency protection

DUBAI: Creditors have started to enforce claims against Abu Dhabi-based Al Jaber Group, in a dispute triggered by a construction downturn in the UAE more than a decade ago.

Al Jaber, a contractor with interests across a range of sectors, has struggled since building up debt in the wake of a UAE real estate crisis and began talks with creditors in 2011.

Abu Dhabi Commercial Bank, which is working as restructuring and security agent, said in a document dated Sept. 21 which was seen by Reuters, that it had instructions from the majority of creditors to proceed with claims against Al Jaber.

A representative for Al Jaber did not immediately respond to a request or comment. ADCB declined to comment.

The move follows delays in restructuring agreements, under which Al Jaber was to appoint a new board and sell companies and assets such as the Shangri-La hotels in Dubai and Abu Dhabi.

In exchange, creditors had agreed to extend the maturity of a 5.9 billion dirhams ($1.61 billion) loan, cut interest rates, and provide additional revolving debt.

The initial enforcement action now being pursued by creditors includes the “acceleration and demand for payment of amounts outstanding” under the previously agreed debt restructuring, a source familiar with the matter said.

Enforcement will also allow creditors to claim against Al Jaber’s chairman under a 4.5 billion dirham loan to the company.

Several UAE companies have sought to extend debt maturities or agree better terms in recent years to avoid defaults, after an oil price crash hit energy services and construction.

The coronavirus crisis has added to the strain and Arabtec Holding, the UAE’s biggest listed contractor, this week will discuss options including dissolution after the pandemic hit projects and led to additional costs.

Meanwhile, Dubai-listed construction firm Drake & Scull is working to reach an agreement with its creditors in an out-of-court process.