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HSBC Q2 Profit Plunges, Warns Of Hefty Loan Losses; Stock Dips

hsbc aug03 lt

Shares of HSBC Holdings Plc (HSBC,HSBA.L) were down in London and Hong Kong trading after the Asia-focused British lender reported Monday sharply lower profit in its second quarter, hurt by higher expected credit losses, weak revenues as well as the absence of prior year gain.

For fiscal 2020, the company projects expected credit losses and other credit impairment charges or ECL charge in the range of $8 billion to $13 billion.

The company said it continues to face a wide range of potential economic outcomes for the second half of 2020 and into 2021. This will be partly based on the extent of any potential impacts from new waves of Covid-19.

Further, HSBC said it intends to accelerate transformation programme and execute additional cost actions to help mitigate pressures on revenue.

Noel Quinn, Group Chief Executive, said, "Our performance in the second half of the year will continue to be influenced by the path and economic impact of the Covid-19 outbreak. Geopolitical uncertainty could also weigh heavily on our clients, particularly those impacted by heightened US-China and UK-China tensions, and the future of UK-EU trade relations."

The company plans to provide an update on medium-term financial targets and dividend policy at its year-end results for 2020.

For the second quarter, profit before tax plunged 82 percent to $1.09 billion from last year's $6.19 billion. Profit after tax was $617 million, down 88 percent from last year's $5.03 billion.

ECL increased to $3.83 billion from last year's $555 million, largely from charges relating to the ongoing global impact of the Covid-19 outbreak and the forward economic outlook, and from charges relating to a small number of wholesale exposures.

The reduction in profit included the impact of the non-recurrence of last year's dilution gain of $0.8 billion in Saudi Arabia, and a $1.2 billion impairment of software intangibles in Europe.

Net operating income fell to $9.23 billion from last year's $14.39 billion. Revenue was $13.06 billion, 13 percent lower than $14.94 billion a year ago.

Net interest margin was 1.33 percent, down 21 basis points from the first quarter, primarily reflecting the initial impact of the reduction in interest rates due to the Covid-19 outbreak.

In London, HSBC shares were trading at 326.15 pence, down 4.69 percent. In Hong Kong, HSBC shares traded at HK$33.05, down 5.44 percent.

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