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HSBC slumps as profits halve amid hefty restructuring charges

The bank also warned that the coronavirus outbreak could result in “revenue reductions" and "further credit losses" as a result of the disruption in China and Hong Kong

HSBC - HSBC profits halve amid restructuring charges

HSBC Holdings PLC (LON:HSBA) shares dropped on Tuesday as the global lender saw its full-year profits cut in half after suffering hefty charges against its banking operations in Europe.

For 2019, the FTSE 100-listed firm reported a profit attributable to ordinary shareholders of US$6bn, down 53% on the prior year, while adjusted revenues rose 5.9% to US$55.4bn.

READ: HSBC cull continues as operations and global banking bosses replaced

The profit slump was blamed on a US$7.3bn goodwill impairment charge related to the firm’s global banking and markets division and a US$2.5bn charge against its commercial banking arm in Europe, which it said reflected “lower long-term economic growth rate assumptions” and a planned restructuring of the business.

Looking into 2020, HSBC warned that the coronavirus outbreak had caused “significant disruption” for its staff, suppliers and customers in mainland China and Hong Kong, and that there was the potential for an economic slowdown in the territories which could in turn impact expected credit losses.

The bank also said it was possible that it would experience “revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains” if the outbreak continued.

As part of its restructuring plan to cut costs in its underperforming businesses, HSBC said that it will be suspending share buybacks in 2020 and 2021, while overnight the firm also announced around 35,000 job losses over the next few years.

"The group's 2019 performance was resilient, however, parts of our business are not delivering acceptable returns. We are therefore outlining a revised plan to increase returns for investors, create the capacity for future investment, and build a platform for sustainable growth”, said HSBC chief executive Noel Quinn.

In afternoon trading in London, HSBC shares were down 6.2% at 554p.

Restructuring likely to “run to billions of dollars”, says analyst

Richard Hunter, head of markets at Interactive Investor, said that HSBC’s planned overhauls in the coming years are likely to “run to billions of dollars” given the bank’s size, although there was some positivity in the company’s balance sheet which had remained “intact” despite what he said was a “general malaise” in the figures.

“Despite the disappointing headline numbers, HSBC remains extremely profitable and actually delivered a decent performance in its core Asian units on the whole, despite the obvious limitations in the period. Although the share buyback programme has been abandoned for the moment, the dividend does not appear to be at risk and a yield of 5.3% is a crumb of comfort to investors who have witnessed a 21.5% decline in the share price over the last two years.”, Hunter said.

Looking ahead, the analyst said there were currently more questions than answers around HSBC’s restructuring, most notably the absence of a permanent replacement chief executive following the departure of John Flint in August which hunter said was “an additional distraction” to the overarching challenges.

 -- Updates share price --

Quick facts: HSBC

Price: 383.65 GBX

LSE:HSBA
Market: LSE
Market Cap: £78.13 billion
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