HSBC profit slumps 65%, speeds up 35K job cut

HSBC profits plunge 65% in the company’s Q2 earnings report. Yahoo Finance’s Tom Belger discusses.

Video Transcript

ADAM SHAPIRO: To check in with Tom Belger, one of the largest banks in the world, the largest in Europe, headquartered in London, setting aside billions in loan loss provisions. What else can you tell us about HSBC?

TOM BELGER: Yes, we found out today profits at Europe's biggest bank plunged 65% in the first half of the year. That's much worse than expected, briefly [INAUDIBLE] stocks earlier today to their lowest levels in more than a decade. It's obviously partly down to COVID. They're not only warning on the slump so far and lower central bank rates cutting into revenues, but they're also putting billions aside, as you say, potential bad loans this year.

They've put far more cash aside than analysts expected as well, up to 13 billion maximum this year. They're not the first to do this. It's worth saying last week we saw similar moves from other leading banks. My colleague Oscar Williams-Grut, he crunched the numbers at more than a dozen sets of results from European banks. He found they put aside some 39.4 billion. That was as of last Friday, this 13 billion on top of that.

So far we've seen default rates pretty stable because of the early stage-- it's at the early stages of the crisis and the levels of government and central bank intervention. But things are widely expected to deteriorate, and those numbers are quite a striking sign really of what we might see down the line for European economies. But remember, it's worth thinking about the fact that HSBC makes half of its cash in Asia. So they face a different set of challenges there. They explicitly knowledge in these results that increased US China tensions, increased UK China tensions could weigh heavily on their clients and add to the uncertainty about those credit losses or potential losses on top of all the unrest in Hong Kong itself.

And they've actually come under flak. It's obviously not just Western governments, human rights organizations, but also the Chinese governments over their activities in China, and not just over the national security law but over Huawei way as well. They've been tangled up in that row as well.

And it's worth saying, what they are arguing in these results is that there's is an acute need for a bank that's able to bridge that gap between East and West. And they points out, they survived a long time. They survived political tensions before. And they're actually expected to double down on a pivot towards China.

One last thing finally worth saying-- they're also expected to accelerate now a major program, turnaround program involving massive job cuts of 35,000 staff. 4,000 have gone already, but that, it seems, it's going to move a fair bit faster as they look to adjust to a rapidly changing, deteriorating situation. Adam.