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HSBC tries to shake off US-China tensions as profits plunge

HSBC
HSBC

HSBC could disown pro-democracy staff who are arrested in Hong Kong under a draconian new Chinese security law.

Announcing a plunge in profits, chief executive Noel Quinn said the bank follows the law in every country where it operates and that any action by authorities against its workers would have to be assessed on a case by case basis.

It risks sparking a further backlash over HSBC's controversial support for the Hong Kong law, which criminalises anti-government movements and introduces life sentences or long jail terms for vaguely defined crimes.

Mr Quinn's comments came as HSBC - which is headquartered in London but makes most of its profits in the former British colony - warned that it faces a flood of toxic loans from the Covid crisis.

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Pre-tax profits fell to $4.3bn (£3.3bn) in the first half of 2020, down 65pc on a year earlier.

The bank is fighting to avoid becoming a pawn in the diplomatic stand-off between the West and China's Communist leadership.

Mr Quinn said the political battle would “inevitably create challenging situations for an organisation with HSBC’s footprint", but insisted it is still possible to run a global bank despite fears that US-China tensions will fragment the international financial system.

He denied that HSBC had ever checked customers’ links to pro-democracy groups following reports that clients were being screened for ties to groups opposing Chinese authoritarian rule in Hong Kong.

Mr Quinn said: “We do not do any particular checks with respect to pro-democracy links.

“We want to continue to support the people and businesses of Hong Kong, for there to be a stable business environment and for the economy to flourish consistent with the principle of one country, two systems.”

Asked how he would respond if the bank's own staff were arrested for speaking out in favour of democracy, Mr Quinn said: "It would be inappropriate of me to speculate on that, as it would be in any other country in which we operate. I think we'd have to look at the circumstances on a case by case basis."

The bank increased its bad debt provision to $6.9bn, a sixfold rise on the amount it set aside at the same time a year ago, and warned that loan losses for 2020 could hit $13bn. This blow more than offset increased revenues in its trading business, which was boosted by chaos on the markets.

Barclays, Lloyds and NatWest set aside billions of pounds to cover loan losses as the global economic collapse pushes households and businesses to the brink.

Markets Hub - HSBC Holdings PLC
Markets Hub - HSBC Holdings PLC

Interest rate cuts by central banks around the world seeking to stimulate economies during the pandemic have piled further pressure on HSBC.

The lender's net interest margin - the difference between what it charges its creditors and pays out on depositors' savings - fell 0.21 percentage points to 1.33pc in the second quarter.

Ewen Stevenson, HSBC’s chief finance officer, said the bank wants to return to paying a dividend “as soon as we can” but acknowledged that this would depend on the highly uncertain economic outlook and how much of a hit it takes from bad debts.

Ian Gordon, a banking analyst at Investec, said it was encouraging that HSBC had beaten market expectations if bad debt provisions were excluded.

The bank made a $7.4bn profit in Asia, including $5.1bn in Hong Kong, but its European operations sank to a $3.1bn loss, sparking speculation from analysts at Panmure Gordon that the bank could be broken up.

City Intelligence newsletter (SUBSCRIBER) Article
City Intelligence newsletter (SUBSCRIBER) Article

Mr Quinn played down struggles in Europe and the US. He said: “As a global bank serving clients on a global basis, one needs a footprint in all the key geographies of the world but we want to make sure our footprint is profitable.”

He said planned cost-cutting was well underway in Europe in the US and pledged to accelerate the reduction of the bank’s workforce by about 35,000 people through redundancies and a hiring freeze.

Mr Quinn said the redundancies, which restarted in June, would now be accelerated and that the bank was looking for additional ways to make the business sustainable.

Shares fell 2.9pc to 332p and are down almost 45pc this year.