HSBC, Europe’s biggest bank, has seen its profits plunge in the first six months of 2020, squeezed by low interest rates and the COVD-19 pandemic, The Telegraph reported.
The bank’s bad debts are expected to rise to $6.2 billion, six times the number of defaulted loans last year as layoffs have hurt customers’ ability to repay debt.
Pre-tax profits fell to $4.3 billion, nearly two-thirds lower than a year earlier, while its European operations suffered a $3.1 billion loss, the newspaper reported.
“Our first half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility,” said HSBC CEO Noel Quinn.
Shares of HSBC fell by 4.5 percent to $21.63 in morning trading Monday (Aug. 3), down from the Friday (July 31) close of $22.65.
In addition to bad debt, HSBC has been impacted by political tensions between China and the West, the newspaper reported. The United Kingdom-based bank typically earns its profits in Asia, which delivered $7.4 billion in profit from January through June.
It has been widely criticized for backing a new law that criminalizes “anti-government” movements and comes with long jail sentences or life in prison for “national security crimes.”
“Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint,” said Quinn. “We will face any political challenges that arise with a focus on the long-term needs of our customers and the best interests of our investors.”
Nicholas Hyett at Hargreaves Lansdown, a financial service company based in Bristol, England, said HSBC’s transformation plan would help soften the blow to the bottom line.
“Low interest rates are a headwind that’s here to stay, and a shrinking investment bank makes that more of a challenge,” he told The Guardian. “We wouldn’t be entirely surprised if that fed through into reduced ambitions on profitability and maybe even a rebased dividend.”
Last month, HSBC’s troubles were exacerbated when a technical glitch caused thousands of U.K. government small and medium-sized business (SMB) loans sent under incorrect names.
In one instance, a customer named Cesar Basanta said he had been waiting weeks for a £50,000 ($62,800) bounce-back loan, which had been made in his name rather than his company’s as was needed, BBC News reported.
In response, HSBC said it’s working on the problem and that customers won’t be held liable. The bank has contacted customers who accepted the loans in their own names in order to make changes.