Profits at HSBC have surged as the bank rides a recovery in the economy and releases cash it had earmarked to cover loans it feared would sour during the pandemic.
First-half pre-tax profits at the London-based lender climbed to $10.8 billion from $4.3 billion a year earlier, surpassing the $9.5 billion that had been expected by City analysts, the group reported yesterday.
Like rivals Barclays, Natwest and Lloyds Banking Group, which posted interim figures last week, HSBC has been buoyed by a move to free up cash that it had set aside in 2020, when there were concerns that banks would be swamped by a wave of bad loans from the Covid-19 crisis.
It released $719 million in the six months to the end of June, of which $284 million came during the second quarter. That compared with the $6.9 billion charge that HSBC had taken in the first half of 2020 as it braced for loan losses. This year’s release offset a 4.5 per cent dip in revenues to $25.6 billion after HSBC was squeezed by low interest rates around the world.
The bank said the decision to free up cash “reflected an improvement in the economic outlook, notably in the UK”. Noel Quinn, chief executive, denied that the lender had been too conservative last year.
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“We’re probably collectively economically in a better position today 18 months on than any of us,” Quinn said. Even so, the bank has $2.4 billion of Covid provisions on its balance sheet “as protection against any further deterioration over the next six or 12 months”.
HSBC also followed other British lenders by announcing with its results that it was resuming dividend payments with a 7 cents a share interim distribution to investors. Britain’s biggest banks were temporarily blocked by the Prudential Regulation Authority from paying dividends during the pandemic but the limits were removed last month.
Ewen Stevenson, HSBC’s finance chief, signalled that returns to investors might be topped up this year by a share buyback.
“I was categorical at full-year results saying that we weren’t going to do buybacks this year. We’ve now opened up the possibility that we’d consider them this year,” he said.
HSBC is Europe’s largest bank and can trace its roots to 1865, when it was founded in Hong Kong to facilitate trade between east and west. Hong Kong remains its single biggest market and it generated $6.9 billion of its profits during the latest period from Asia.
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Quinn, 59, is in the midst of a restructuring of the group to boost its profitability by reducing costs and tilting it further towards Asia.
His plan includes cutting 35,000 jobs in total and HSBC said its headcount fell by about 3,500 to 222,550 between the end of December and the end of June. Its bonus pool, however, rose by $900 million year-on-year as HSBC increased rewards for its bankers to reflect its profits and compete with rival firms.
Quinn is seeking to overhaul HSBC just as the bank finds itself stuck in the middle of rising tensions between the United States and China, particularly over Beijing’s recent crackdown on Hong Kong through the imposition of its draconian security law. Quinn said of the law: “We haven’t experienced any matters of concern with regard to our staff, we’ve not had any particular issues raised by our staff.”
HSBC shares dipped 1¼p, or 1.3 per cent, to 396¼p.
