HSBC has warned a “severe” coronavirus scenario could cost it as much as $11bn (£8.7bn) this year as it reported a sharp fall in quarterly profit due to the pandemic.
The banking giant saw earnings dip to $3.2bn (£2.5bn) for the January-March period, down 48% compared to the same quarter last year and lower than expected by analysts.
It was due to an extra $2.4bn charge for “expected credit losses” (ECLs) – a provision for loans going bad – mainly due to the impact of COVID-19 on the global economy.
HSBC modelled a range of scenarios for the impact of the pandemic including a worst case outlook.
“Our severe ECL scenario… could result in an ECL charge for 2020 in the range of $7bn to $11bn (£5.5bn to £8.7bn),” the bank said.
HSBC added that it was looking to cut day-to-day costs amid the crisis but is pausing “the vast majority of redundancies” due under a major shake-up announced in February – which will see 35,000 jobs go over the next three years – in order to “reduce the uncertainty” facing workers.
The bank said it had hiked its provision for loans going bad as the coronavirus took its toll on the economy, notably with effects on the oil and gas sector as well as transport and consumer spending.
“The outlook for world economies in 2020 has substantially worsened in the past two months,” HSBC said.
Factors including lower customer activity, reduced interest rates – which make it harder for lenders to achieve profits – and more bad loans – including “fraudulent activity” – were among those set to squeeze the bank as a result of the crisis, it added.
The bank warned these were likely to result in “materially lower profitability in 2020”.
HSBC’s sharply higher loan loss provisions follows similar moves by US lenders this month, with the top four Wall Street banks setting aside $14.2bn (£11.2bn) as the coronavirus crisis weighs on the economy.
Elsewhere on Tuesday, Santander reported an 82% slump in quarterly profits to €331m (£284m) as it set aside €1.6bn (£1.4bn) due to the impact of the pandemic.
The Spanish lender’s UK arm reported a 58% fall in profits to £114m as it set aside £165m for bad loans including a £122m “COVID-19 charge”.
But Swiss banking giant UBS reported better than expected results, buoyed by ultra rich clients reshuffling portfolios amid volatile markets.
Its profits rose 40% to a better-than-expected $1.6bn (£1.3bn), even accounting for the risk of increased loan defaults resulting from the pandemic.
The figures kick off a busy week for the UK and European banks which will deliver a snapshot of how they are coping with the crisis – and how many billions of pounds they will have to put aside.
Unlike during the financial crisis of 2008 when reckless lending by banks was blamed for the crash, the sector is this time being asked to be part of the solution in supporting the economy.
That will put the spotlight on the likes of Lloyds Banking Group, Barclays and state-backed NatWest – which recently changed its name from Royal Bank of Scotland – as they deliver first quarter numbers over the next few days.