HONG KONG (Reuters Breakingviews) - HSBC is doing its best to power through the storm. The 36% decline in third-quarter pre-tax profit from a year earlier, to $3.1 billion, was better than feared thanks in part to choppy markets and modest loan provisions. Boss Noel Quinn’s plan to wring more fees out of customers is also welcome. He is up against more than just central bankers, though.
The UK-based bank’s cost-cutting efforts are taking it only so far, although Quinn is now promising more beyond the 35,000 job reductions flagged earlier. HSBC shares reached a 25-year low late last month, and even after a recent rally are trading at barely half the expected book value over the next year.
Results reported on Tuesday offer glimmers of hope. HSBC’s fixed-income traders benefited from the market volatility. Losses from bad loans are also now “trending” toward the lower end of an $8 billion to $13 billion range.
Quinn knows it’s not enough, however, especially with the net interest margin down 36 basis points from third-quarter 2019, to 1.2%. To combat ultra-low interest rates, HSBC is putting a greater emphasis on generating more revenue from basic banking services and beyond.
There are larger forces beyond its control. For one thing, Chinese authorities are mercurial, and for now there are indications Beijing remains irritated about HSBC’s involvement in a U.S. probe into telecommunications-equipment maker Huawei. Beijing left the bank off a prestigious overseas bond deal this month. The importance of the Hong Kong market to HSBC also means any escalation of U.S.-China tensions could threaten that business.
Also looming large are the bank’s UK regulators. One reason HSBC shares recently experienced their biggest four-week surge in a while was anticipation that it might get approval to resume paying dividends. That depends largely on authorities regaining confidence that the economic hit from the pandemic has peaked, even as Britain exits the European Union on Dec. 31.
The trouble with many of these factors are that they are largely beyond HSBC’s control. That means however deftly Quinn sails the ship, the stiff winds may prevail.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.