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HSBC Q1 Pre-Tax Profit Declines Y/Y on Coronavirus Woes

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HSBC Holdings’ HSBC first-quarter 2020 pre-tax profit of $3.2 billion represents a decline of 48% from the prior-year quarter’s reported number. The reduction primarily reflects the adverse impact of the coronavirus outbreak and weakening oil prices.

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 $13.3 billion decreased 5.8% year over year.

Adjusted expenses declined 2.9% from the prior-year quarter to $7.7 billion. The fall was mainly due to lower performance-related pay and reduced discretionary costs.

Common equity Tier 1 ratio (transitional) as of Mar 31, 2020, was 14.6%, up from 14.3% as of Mar 31, 2019. Leverage ratio was 5.3%, down from 5.4% at the end of the previous year.

Quarterly Performance by Business Lines

Retail Banking and Wealth Management: The segment reported $343 million in pre-tax profit, down 84.2% year over year. The decline was due to a fall in revenues.

Commercial Banking: The segment reported pre-tax profit of $609 million, down 69.7% from the prior-year quarter. The decline was mainly due to lower revenues.

Global Banking and Markets: Pre-tax profit of $995 million for the segment declined 35.2% from the prior-year quarter end. The decrease primarily resulted from lower revenues, partly offset by a decline in operating expenses.

Global Private Banking: Pre-tax profit for the segment was $120 million, up 25% from the prior-year quarter’s reported figure. The increase resulted from higher revenues and lower expenses.

Corporate Centre: The segment reported pre-tax profit of $1.2 billion compared with $396 million recorded in the prior-year quarter.

2020 Outlook

The company projects higher expected credit losses as a result of the virus-induced crisis.

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, while maintaining strategic investments.

Restructuring costs are expected to decline year over year.

The company expects mid- to high-single-digit growth in risk-weighted assets.

Our Viewpoint

The company’s initiatives to strengthen digital capabilities globally and improve operating efficiency through further 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. Moreover, though its initiatives to improve market share will likely support financials, the efforts are expected to increase expenses, going forward.

HSBC Holdings plc Price, Consensus and EPS Surprise
 

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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Release Dates of Other Foreign Banks

Deutsche Bank DB and Barclays PLC BCS are set to report quarterly results tomorrow.

Itau Unibanco Holding S.A. ITUB is expected to report on May 4.

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