HSBC Sets Aside Most for Credit Losses in Almost Nine Years

(Bloomberg) -- HSBC Holdings Plc took its biggest charge for bad debt in almost nine years and warned of deepening loan losses as it pushes back parts of its restructuring program.

Expected credit losses swelled to $3 billion in the first quarter, almost double estimates, and could rise to as high as $11 billion this year, the lender said on Tuesday. Adjusted pretax profit missed a consensus estimate collected by HSBC.

Delivering his first quarterly results as the permanent chief executive officer, Noel Quinn’s plan to boost profitability at Europe’s biggest lender is being curtailed by the virus outbreak that has also shaken his competitors around the world. Even as turbulent markets boosted trading income, the biggest banks in the U.S. set aside about $25 billion in the quarter to cover bad loans, while loan losses are also mounting in Europe.

“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,” Quinn said in a statement. “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.”

The bank said on Tuesday bad debt may reach $7 billion to $11 billion this year, resulting in “materially lower profitability” in 2020, which will be mitigated by reduced operating expenses. Restructuring costs will be lower this year than estimated due to the delays.

The credit losses included a significant charge in Singapore, where the bank is on the hook for a $600 million loan to a failed oil trader. HSBC didn’t name the borrower in the earnings release.

Like other banks it did benefit from more turbulent markets, seeing a 25% gain in revenue at its global markets unit.

At the behest of U.K. regulators, London-based, Asia-focused HSBC has canceled its dividend, angering key investors in Hong Kong and sending its shares down to an 11-year low this month. Quinn has been forced to delay key parts of a restructuring program announced in February, which included about 35,000 job cuts, combining business areas and an accelerated shift to Asia to lift profits.

The bank’s medium-term financial targets will be assessed during the year, it said. The dividend will be reviewed “at, or ahead of, our year-end results for 2020.”

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