Taken together, the moves put pressure on overall pretax profit, which came in at just $6.3 billion for the quarter ended June 30, missing estimates of $7 billion. Shares of HSBC sank as much as 5.1% in London.
“We have delivered these results in an ongoing period of uncertainty,” Elhedery said in a conference call with journalists. “In this environment, it has become increasingly important to simplify the organization and make it more agile.”Billy Buddle embarked on an overhaul of HSBC’s operations, establishing four new businesses as part of what he has called a “simplification” of the bank’s global network. At the same time, though, HSBC has also been exposed to a series of tariffs unleashed by US President Donald Trump against trading partners.
HSBC’s charge on its holding in BoCom comes after China’s Finance Ministry recapitalised the lender earlier this year. China is grappling with a slowdown in its real estate market, even as trade tensions with the US have escalated.
The banking industry’s asset quality remains under pressure, with officials cautioning that more bad debt could arise from the property market.Downward Pressure
The quarter included expected credit losses of $1.1 billion, about $700 million higher than a year earlier. The increase included charges related to the commercial real estate sector in Hong Kong, with the bank blaming an “over-supply of non-residential properties putting continued downward pressure on rental and capital values.”
The London-headquartered lender also said on Wednesday, July 30, that it would repurchase stock worth $3 billion, adding to the roughly $5 billion it has already announced this year.
HSBC is known for being the world’s largest trade bank and an anchor of commerce between the Asia Pacific region and the rest of the world. That meant it has become highly sensitive to the political jostling between Washington and Beijing, which have engaged in a tit-for-tat trade war this year.
HSBC “is well positioned to manage the changes and uncertainties prevalent within the global environment in which we operate, including in relation to tariffs,” according to its statement. The lender added that the tariffs may have a “relatively modest impact” on its revenue.
What Bloomberg Intelligence Says:HSBC’s $400 million charge in 2Q against commercial real estate loans in Hong Kong and raised cost-of-risk guidance to 40 bps might overshadow a nearly 10% pretax profit beat (excluding notable items). After rallying almost 20% in the past three months, pre-empted ROTE resilience to elevated macro risks and continuation of share buybacks ($3 billion announced in 2Q), momentum could stall without new catalysts and still-heightened volatility.
— Tomasz Noetzel, BI banking analyst
Earlier this year, HSBC began reviewing its retail banking operations across four markets in Asia. It’s still studying its businesses in Australia, Sri Lanka, Indonesia but the firm has decided to wind down the division in Bangladesh, Elhedery said on the conference call with journalists.
“Our corporate and institutional banking business is unaffected by these reviews, and all four markets remain critical to our international network for CIB customers,” Elhedery said. “By taking these steps, we are able to invest in growth.”
