As HSBC’s first quarter profit plunges on the back of provisions against bad loans and the bank warns of further credit hits to come, employees in Hong Kong and Singapore may be becoming more apprehensive about what the rest of 2020 has in store for them. Private bankers and traders at HSBC in Asia were among the only people to have enjoyed a (comparatively) reasonable Q1, although Asia as a whole still outperformed other regions.
Globally, HSBC made $3.2bn in profit before tax in the opening quarter, down from $6.2bn a year previously, as the bank set aside $3bn ($2.4bn more than in Q1 2019) for expected credit losses, mainly from charges relating to the impact of Covid-19 and weakening oil prices.
In Asia alone, HSBC’s profit came to $3.7bn, but the lower global number was the result of losses in Europe and North America. HSBC announced in February that it was cutting jobs in the US and Europe and reallocating resources to Asia, but this process is partly and temporarily on hold because of Covid-19.
Still, the bank’s loan provisions (which also include an exposure to Singapore oil trader Hin Leong Trading) meant that Asian profit was down a substantial 25% year-on-year, according to HSBC’s Q1 financial report.
HSBC’s results indicate that private bankers in the region bucked the overall downward trend and performed well. Asian profit in private banking was up 48% to $144m in the opening quarter. Global profit in the unit was driven by “investment and lending revenue” in Asia, because of high volatility in equity markets.
The Q1 report also says that HSBC “invested” in its private banking business in Asia. This is likely a reference to hiring. As we reported in March, HSBC plans to recruit 500 private banking and wealth management staff in Asia by 2022, including an undisclosed but significant number of Singapore and Hong Kong-based private bankers.
Some of this recruitment is temporarily on hold after HSBC imposed a hiring freeze on 26 March, however a source with knowledge of HSBC’s private bank told us recently that recruitment processes begun before that date are continuing. The bank said last month that people with prior written offers would still join, and that it would hire for a “small number of frontline and business-critical roles” (private bankers may potentially fall into this category).
Meanwhile, in global banking and markets (GBM), Asian profit climbed 10% to $1.2bn. Globally (figures by product are not available on a regional level for GBM), the division’s profits were powered by gains in fixed income, currencies and commodities (FICC), primarily due to “increased client activity as a result of higher volatility”. Asia’s dominance of the bank’s overall operations suggests FICC traders in the region played a significant role in the revenue increase.
HSBC’s gains follow those at Credit Suisse. Fixed income revenues in APAC were up 133% year-on-year at the Swiss firm last quarter, while Morgan Stanley’s Q1 trading results were partly driven by a “strong performance” in Asia.
The excitement of Q1 may be short lived, however. Morgan Stanley has warned that for the rest of 2020 it may not be able to rely on its traders to bolster its results in the face of a coronavirus-driven recession. This is likely to be the case for HSBC as well.
More broadly, HSBC’s earnings report contains some stark warnings about the impact of Covid-19 on its (Asia-focused) business, and notes that bad loan provisions for the year could range between $7bn and $11bn. “Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income due to lower lending and transaction volumes and lower wealth and insurance manufacturing revenue due to equity markets volatility,” the report states.
HSBC has also classified the economic impact of Covid-19 on Hong Kong, its largest market, into three “scenario models”, the most severe of which envisions Hong Kong GDP reaching a low point this quarter, with positive GDP growth expected only by Q2 next year.
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