By Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON (Reuters) - HSBC Holdings PLC (L:HSBA) on Tuesday warned of more earnings pain to come after first-quarter profit nearly halved as it boosted provisions against bad loans expected to rise amid the coronavirus pandemic.
HSBC also said the outbreak would mean sustained pressure on its revenues as customer activity declined and lower interest rates squeezed margins, while noting that increased fraudulent activity could lead to "potentially significant" credit losses.
The bleak update set out the scale of the problems facing Europe's biggest bank by assets as it grapples with corporate borrowers in crisis worldwide, plunging stock, oil and commodity prices as well as low interest rates and difficulty in cutting costs by laying off staff.
Profit before tax came in at $3.2 billion for January-March, down from $6.2 billion a year ago and below an average analyst forecast of $3.7 billion compiled by the bank.
The bank increased its expected credit impairment charges by a hefty $2.4 billion to $3 billion due to the impact of COVID-19 and said total provisions for the year could range from $7 billion to $11 billion.
Quarterly results were also hit by weakening oil prices as well as "a significant charge related to a corporate exposure in Singapore", it said.
HSBC did not name the Singaporean company, but the lender is among leading creditors to Singapore oil trader Hin Leong Trading (Pte) Ltd, which sources have said is under court-appointed supervision to restructure billions of dollars in debt following the collapse of the oil price.
Hin Leong has declined to comment on its debt restructuring.
The London-headquartered bank plans to reduce its operating costs to try and mitigate the fall in revenue, leading to "materially lower" profitability in 2020 than last year, it added.
Its Hong Kong shares (HK:0005) dropped 0.5% in the afternoon session after the results, giving up gains of nearly 2% earlier in the day.
HSBC Chief Financial Officer Ewen Stevenson told Reuters the bank expected a lower credit loss rate for rest of the year compared to the first quarter.
HSBC's sharply higher loan loss provisions follows similar moves by U.S. lenders this month, as banks brace for the impact of a global recession on their borrowers.
The top four U.S. banks set aside $14.2 billion in loan loss provisions, with sales and trading revenue from investment banking the only silver lining as frenzied markets worldwide drove up commissions.
European peer Credit Suisse (SIX:CSGN) last Thursday also reported a billion dollar increase in bad loan provisions, although that was cushioned by a bumper return from its trading arm.
HSBC said last week it is pressing ahead with plans outlined in February to shift capital from underperforming businesses, reduce costs and strip out layers of management.
While many planned job redundancies have been paused to avoid disruption and leaving staff unable to find work elsewhere, Chief Executive Noel Quinn has cut some top level jobs and reshuffled others as he tries to prune HSBC's complicated management structure.