Sargon's Corner - HSBC Precipitous Profit Plunge

HSBC Holdings plc (HSBC) – the bank that originated in the former British colony of Hong Kong - is now caught up in the tensions between China and, in particular, the US. The bank this week reported a first half 65 percent fall in profits and blamed not only Covid-19, but the challenging situations created by the escalating tensions between China and the West.

HSBC, in preparation for acquiring UK-based Midland Bank and the then upcoming transfer of Hong Kong’s sovereignty to China in 1997, relocated its world headquarters from Hong Kong to London in 1993. But it remains heavily weighted in Asia, according to a CNN report.

Pre-tax profits fell to $4.3 billion as a result of the Covid-19 hit, falling revenues and worse than expected credit losses. Chief executive, Noel Quinn, was quoted as saying that US-China tensions had so far not had a material impact on earnings. But the current tensions inevitably created “challenging” situations for an organization with HSBC's footprint, he said. Expected credit losses for 2020 could hit as much as $13 billion this year, "given the deterioration in consensus economic forecasts”.

Potentially, it could get worse for HSBC which, according to some analysts, may be caught in an East-West squeeze created by China’s increasing moves to assert its control over HSBC’s former home base Hong Kong. For example, Chinese state media has accused HSBC of colluding with the US in its legal fight against Chinese tech giant Huawei, which the bank denies.

The bank is reportedly planning to slash 35,000 jobs. And now might not be a good time to get offside with China.

Sargon Elias is a multi-decade veteran of financial markets with experience spanning across the globe. He is currently CEO of Rockfort Markets.