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HSBC Q2 Pre-Tax Profit Declines Y/Y on Lower Revenues

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HSBC Holdings’ (HSBC - Free Report) second-quarter 2020 pre-tax profit of $1.1 billion represents a decline of 82.4% from the prior-year quarter’s reported number. The reduction primarily reflects higher expected credit losses and other credit impairment charges resulting from the coronavirus outbreak.

Shares of the company lost 5.3% in pre-market trading. However, a full-day’s trading session will depict a better picture.

The company recorded lower revenues in the quarter along with a decline in expenses. Capital ratios were mixed.

Revenues & Expenses Decline

Adjusted total revenues of $13.2 billion decreased 3.8% year over year. Reported revenues were down 12.6% year over year to $13.1 billion.

Adjusted expenses declined 7.2% from the prior-year quarter to $7.3 billion. The fall was mainly due to management actions, reduced discretionary costs and performance-related pay accrual.

Common equity Tier 1 ratio as of Jun 30, 2020, was 15%, up from 14.3% as of Jun 30, 2019. Leverage ratio was 5.3%, down from 5.4% at the end of the previous year.

Quarterly Performance by Business Lines

Wealth and Personal Banking: The segment reported $813 million in pre-tax profit, down 55.2% year over year. The decline was due to a fall in revenues, partly offset by lower costs.

Commercial Banking: The segment reported pre-tax loss of $582 million against a pre-tax profit of $1.95 billion recorded in the prior-year quarter. The segment recorded a decline in revenues and higher expenses.

Global Banking and Markets: Pre-tax profit of $866 million for the segment declined 20.4% from the prior-year quarter end. The decrease primarily resulted from higher operating expenses.

Corporate Centre: The segment reported pre-tax loss of $8 million against pre-tax profit of $1.34 billion recorded in the prior-year quarter.

2020 Outlook

The company projects expected credit losses and other credit impairment charges of $8-$13 billion.

Moreover, lower customer activity levels and reduced global interest rates will likely put pressure on revenues. Notably, to partly mitigate the reduction in revenues, the company plans to reduce expenses.

It expects mid- to high-single-digit percentage growth in risk-weighted assets.

Our Viewpoint

The company’s initiatives to strengthen digital capabilities globally and improve operating efficiency through restructuring efforts will go a long way in supporting profitability. However, slow economic growth in Europe, low interest rate environment across the globe and weak loan demand are expected to hamper overall growth to some extent.

HSBC Holdings plc Price, Consensus and EPS Surprise


HSBC Holdings plc Price, Consensus and EPS Surprise

HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote

Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Barclays PLC’s (BCS - Free Report) second-quarter 2020 net income attributable to ordinary equity holders of £90 million ($111.6 million) represents a decline of 91.3% from the prior-year quarter number. Results were primarily hurt by a significant increase in credit impairment charges. Also, the company witnessed a decline in the top line. Nevertheless, lower operating expenses were a tailwind.

UBS Group AG (UBS - Free Report) reported second-quarter 2020 net profit attributable to shareholders of $1.23 billion, down 11% from $1.39 billion in the prior-year quarter. The performance was impacted by a decline in net fee and commission income (down 4% year over year) along with a rise in expenses. However, higher net interest income (up 36%) was a tailwind.

ICICI Bank’s (IBN - Free Report) first-quarter fiscal 2021 (ended Jun 30) net income was INR25.99 billion ($344 million), up 36% from INR19.08 billion ($253 million) in the prior-year period. The net income included the coronavirus outbreak-related provisions of INR55.50 billion ($735 million). The results were driven by a rise in net interest income, growth in loans and deposits, and lower operating expenses. However, provisions surged, owing to the coronavirus outbreak-related concerns. Further, a decline in non-interest income was a headwind.

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