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4th August 2020
HSBC's Group Chief Executive comments on first half results
Noel Quinn, Group Chief Executive at HSBC, comments on the bank's first half results:
“Our first half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility. Despite this, our Asia franchise showed resilience, and our Global Markets business delivered strong growth compared with last year’s first half. Having paused parts of our transformation programme in response to the COVID-19 outbreak, we now intend to accelerate implementation of the plans we announced in February. We are also looking at what additional actions we need to take in light of the new economic environment to make HSBC a stronger and more sustainable business.
Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC’s footprint. 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.”
Reported profit after tax was down 69% to $3.1bn and reported profit before tax down 65% to $4.3bn from higher expected credit losses and other credit impairment charges(ECL) and lower revenue. Reported profit in 1H20 also included a $1.2bn impairment of software intangibles, mainly in Europe.
In Asia, HSBC reported profit before tax of $7.4bn in 1H20, despite higher ECL, demonstrating the strength and continued resilience of our operations in the region and underlining the importance of Asia to the Group. Higher ECL charges materially impacted profitability in its markets across the rest of the world, notably in our operations throughout Europe.
Reported revenue was down 9% to $26.7bn, reflecting the impact of interest rate reductions, as well as adverse market impacts in life insurance manufacturing and adverse valuation adjustments in Global Banking and Markets, notably in 1Q20. These factors more than offset higher revenue in Global Markets.
The bank says it continuse to face a wide range of potential economic outcomes for the second half of 2020 and into 2021, partly dependent on the extent of any potential impacts from new waves of COVID-19, the path to the development of a possible vaccine and market and consumer confidence levels. Heightened geopolitical risk could also impact a number of its markets, including Hong Kong and the UK.
Applying a range of weightings to our ECL sensitivity analysis, as disclosed on pages 56 to 62 of the Interim Report 2020, could result in an ECL charge in the range of $8bn to $13bn for 2020. This range, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, is higher than at 1Q20 given the deterioration in consensus economic forecasts and actual loss experience during 2Q20.
Lower global interest rates and reduced customer activity have put increasing pressure on revenue, and are expected to continue to do so.
We intend to accelerate our transformation programme and execute additional cost actions to help mitigate pressures on revenue and create capacity for further investments in technology.
The bank expects mid-to-high single-digit RWA percentage growth in 2020, primarily from credit rating migration movements, which is expected to have an adverse impact on the bank's CET1 ratio. It will continue to aim to reduce RWAs in low-returning areas, and improve efficiency to allow resources to be further and faster allocated to areas of competitive advantage, higher returns and growth.
Given the current high degree of uncertainty, HSBC are continuing to monitor closely the implications on its business plan and medium-term financial targets, while also undertaking a review of our future dividend policy. It intends to provide an update on medium-term financial targets and dividend policy at year-end results for 2020.