(Alliance News) - After US banks kicked off first-quarter earnings season last week, it is the turn of European peers this week.
The biggest of these, HSBC, 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.
The lender 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, HSBC 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. The figure missed the first-quarter company-compiled consensus estimate of USD3.66 billion.
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."
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."
HSBC already had 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.
HSBC shares were down 1.7% early Tuesday in London.
Also reporting Tuesday were UBS in Switzerland, Banco Santander in Spain, and Westpac in Australia.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.1% at 5,842.32
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Hang Seng: up 0.9% at 24,494.14
Nikkei 225: closed down 0.1% at 19,771.19
DJIA: closed up 358.51 points, 1.5%, at 24,133.78
S&P 500: closed up 1.5% at 2,878.48
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GBP: soft at USD1.2412 (USD1.2421)
EUR: down at USD1.0817 (USD1.0836)
Gold: down at USD1,699.05 per ounce (USD1,712.14)
Oil (Brent): soft at USD19.12 a barrel (USD19.22)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Tuesday's Key Economic Events still to come
US Federal Open Market Committee begins two-day meeting.
1100 BST UK CBI distributive trades survey
0830 EDT US advance international trade in goods
1000 EDT US consumer confidence index
1630 EDT US API weekly statistical bulletin
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Around 373,000 UK property transactions, with a total value of GBP82 billion, are now on hold due to coronavirus lockdown measures, according to estimates from Zoopla. The majority of the sales, which Zoopla said are worth just under GBP1 billion in estate agency fee income, were agreed between November 2019 and February 2020. They would have been set to complete between April and June. Zoopla said the number of sales being agreed is running at a tenth of the levels recorded in early March, with volumes similar to what would be expected around Christmas time in late December. The government has said that, where a property is currently occupied, home-movers should do all they can to amicably agree alternative dates to move.
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The US Federal Reserve has widened a new crisis lending programs to grant many more cities and counties access to funds aimed at blunting the coronavirus pandemic's economic damage. The Fed lowered the population thresholds announced early this month in the Municipal Lending Facility to extend the financing to US counties with a population of 500,000 or more, and US cities with a population of at least 250,000 residents. The previous minimum was two million residents for counties and one million for cities, which limited participation to just 76 entities, including all 50 US states and Washington, DC. "The new population thresholds allow substantially more entities to borrow directly from the MLF than the initial plan announced on April 9," the Fed said in a statement.
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France will on Tuesday reveal how it plans on May 11 to lift its six-week-old lockdown to combat the coronavirus, with cafes set to stay shut but schools controversially being allowed to reopen. Prime Minister Edouard Philippe will unveil the measures in an address to parliament from 1300 GMT, with the government seeking to tread a fine course between the need to kick-start the economy out of crisis while preserving public health. His announcement will be followed by a debate and a vote, with just 75 of the 577 deputies allowed into the National Assembly in order to respect social distancing, while all others will vote by proxy. President Emmanuel Macron announced earlier this month that the lockdown would be lifted from May 11 but he left the details relatively vague.
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BROKER RATING CHANGES
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BERENBERG RAISES WM MORRISON SUPERMARKETS TO 'BUY' (HOLD) - PRICE TARGET 213 (200) PENCE
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BERENBERG CUTS J SAINSBURY TO 'SELL' (BUY) - PRICE TARGET 170 (250) PENCE
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GOLDMAN SACHS STARTS WIZZ AIR WITH 'BUY' - PRICE TARGET 3410 PENCE
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JEFFERIES RAISES STAGECOACH TO 'BUY' ('UNDERPERFORM') - TARGET 85 (125) PENCE
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JEFFERIES RAISES GO-AHEAD GROUP TO 'BUY' ('HOLD') - TARGET 1710 (2160) PENCE
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COMPANIES - FTSE 100
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BP reported a sharp drop in first-quarter earnings as the oil and gas industry suffers from supply and demand shocks "on a scale never seen before", the oil company said. For the quarter ended March 31, underlying replacement cost profit - BP's preferred metric - was USD0.8 billion, down 67% from USD2.4 billion for the same period a year earlier. The result, BP said, reflected lower prices, sharply lower demand in the Downstream unit particularly in March, a lower estimated result from Russian partner Rosneft, and a lower contribution from oil trading. BP swung to a replacement cost loss of USD0.6 billion from USD2.1 billion profit in the first quarter of 2019. BP said it was dealing with an "exceptionally challenging environment" and "demand destruction". Still, the oil major declared a first-quarter dividend of 10.5 US cents, up 2.4% from 10.25 cents in the fourth quarter and first quarter of 2019. "At the same time, we are taking decisive actions to strengthen our finances - reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower. We are determined to perform with purpose and remain committed to delivering our net zero ambition," said Chief Executive Bernard Looney. BP said it is aiming to drive its cash balance point below USD35 a barrel in 2021.
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COMPANIES - FTSE 250
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Retailer Marks & Spencer said it has strengthened its liquidity position in light of the coronavirus crisis as trading is hurt by UK government lockdown measures. "We are planning for the Clothing & Home business to be severely constrained during lockdown and highly uncertain trading conditions in a prolonged exit period. In the absence of a clear basis for forecasting, our scenario planning and stress tests are based on materially subdued trading for the balance of 2020 in Clothing & Home," the retailer said. The high street stalwart said a formal agreement has been reached with the lending syndicate of banks providing the GBP1.1 billion revolving credit facility to substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021 and September 2021. Further, M&S confirmed it is eligible for the UK Government's Covid Corporate Financing Facility, which provides the firm with significant further liquidity headroom. However, in light of the crisis, M&S said it does not anticipate paying a dividend for the financial year, generating a cash saving of GBP210 million.
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COMPANIES - INTERNATIONAL
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UBS reported double-digit profit growth in the first quarter of 2020 despite challenges created by global Covid-19 outbreak. The Swiss bank reported a 30% increase in pretax profit in the three months to the end of March to USD2.01 billion. UBS explained that its first-quarter results reflected high client transaction volumes in Global Wealth Management and the Investment Bank. Operating income grew by 10% despite a rise in credit loss expenses, and operating expenses increased by 4%. UBS's capital position remains strong, with capital ratios consistent with its guidance and comfortably above regulatory requirements, it said. "As a result of years of disciplined strategic execution, risk management and sustained technology investments, we enter these turbulent times from a position of strength," said Chief Executive Sergio Ermotti.
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Novartis reported double-digit sales growth in the first quarter of 2020 amid continued demand for its medicines. The Swiss pharmaceutical company reported an 11% increase in net sales in the three months to March 31 to USD12.28 billion compared to USD11.11 billion a year prior. On a constant currency basis, net sales grew by 13%. Net income for the first quarter of 2020 was 16% higher, at USD2.17 billion compared to USD1.87 billion a year ago. Novartis said key growth drivers include Entresto heart failure drug, Zolgensma spinal muscular atrophy treatment, Cosentyx psoriasis medication, Kisqali breast cancer treatment and Piqray treatment for postmenopausal women and men. The company highlighted that its operations and product demand remained very stable and strong despite coronavirus pandemic.
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Tuesday's Shareholder Meetings
Travis Perkins
Weir
Hammerson
Aptitude Software
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By Tom Waite; thomaslwaite@alliancenews.com
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