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(Alliance News) - HSBC Holdings PLC on Tuesday reported a sharp drop in first quarter profit as the London-headquartered, Asia-focused bank upped its expected credit loss in the face of the Covid-19 pandemic.
HSBC said it expects the global health crisis to hurt revenue in 2020 - due to lower customer activity - resulting in "materially" lower profit compared to 2019. For 2019, Europe's largest lender reported pretax profit of USD13.34 billion.
As a result, HSBC has been forced to up its expected credit loss by USD3.03 billion in the first quarter, from USD585 million a year before.
For the three months ended March, pretax profit dropped 48% to USD3.23 billion from USD6.21 billion a year prior.
Chief Executive Noel Quinn said: "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. 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."
Net interest income was up 1.9%, however, at USD7.61 billion from USD7.47 billion a year before. HSBC's loan book ended the quarter at USD1.040 trillion, up 3.5% on the same point in 2019.
The lender's net interest margin in the period was down to 1.54% from 1.59% a year before.
Net operating income slipped 23% to USD10.66 billion from USD13.84 billion. Net operating income before changes in expected credit losses and other credit impairment charges - also known as reported revenue - narrowed 5.1% to USD13.69 billion from USD14.43 billion.
HSBC's CET1 ratio at the end of the first quarter stood at 14.6%, up from 14.3% at the same point a year before.
Geographically, HSBC posted a loss of USD511 million in Europe during the first quarter, compared to a USD14 million loss a year before. In North America, the lender sunk to a USD111 million loss from a USD379 million profit. In the Middle East & North Africa, profit was almost wiped out, slipping to USD44 million from USD465 million.
In Asia - HSBC's core market - profit fell 25% year on year to USD3.74 billion from USD5.01 billion.
Within individual HSBC units, Retail Banking & Wealth Management reported an 85% drop in profit to US357 million. Commercial Banking saw profit fall 69% to USD611 million. Global Banking & Markets recorded a 49% fall in profit to USD823 million.
Looking ahead, Quinn added: "I take the well-being of our people extremely seriously. 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."
To combat this, HSBC said it will to reduce operating expenses and exercise cost discipline. To aid in this, HSBC has temporarily suspended parts of its restructuring, which will result in a mid-to-high single-digit percentage growth in risk-weighted assets in 2020.
HSBC ended the period with USD857.08 billion in RWAs, down from USD879.40 billion a year before but up from USD843.30 billion at the end of 2019.
The lender has already cancelled its 2019 fourth-quarter dividend, under pressure from UK regulators, and will review its dividend policy at or ahead of its year-end results for 2020.
Shares in HSBC ended at 416.30 pence in London on Monday. The stock is down 30% so far in 2020.
By Paul McGowan; paulmcgowan@alliancenews.com
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