HSBC pre-tax profits fall 26% year-to-date 29% in Q2 on China bad debts and cost cuts

HSBC, the European banking giant, reported a significant decline in pre-tax profits for the first half of 2024, underscoring broader challenges in its operations. The bank’s pre-tax earnings fell 26% year-to-date to $15.8 billion, with a steeper 29% annual drop to $6.33 billion for the second quarter, primarily driven by bad debts linked to China’s economic conditions. CEO George Elhedery attributed the shortfall to “structural challenges” in the global economy, including fiscal vulnerabilities and broad-based tariffs, which compounded uncertainties in interest rates and inflation. The bank also cited a 10% rise in operating expenses from restructuring and technology investments as a drag on profitability, despite revenue of $16.5 billion in Q2, slightly below forecasts of $16.67 billion [1].

The impact of China’s economic struggles was further compounded by HSBC’s exposure to the declining real estate sector in China Hong Kong, which contributed to elevated credit losses. The bank anticipates credit losses to exceed $900 million in 2024, a rise from last year’s $1.9 billion. Analysts highlighted vulnerabilities in HSBC’s reliance on net interest income, with Everbright Securities International strategist Kenny Ng Lai-yin noting the bank’s susceptibility to rate declines compared to peers like Standard Chartered. Meanwhile, Citi Group analysts pointed to China Hong Kong’s sluggish property market as a persistent risk to asset quality, with small developers facing liquidity crises and declining prices [1].

In response, HSBC announced aggressive cost-cutting measures, including $300 million in savings by 2025 and $1.5 billion by 2026. The bank has already incurred $475 million in restructuring costs in Q2 and $141 million in Q1, with expected severance and upfront expenses reaching $1.8 billion in 2026. Elhedery emphasized these steps as part of a broader strategy to streamline operations, including layoffs in Germany and the reduction of investment banking activities outside the Middle East and Asia. The bank also plans to divest non-core businesses, such as its M&A and equities operations in the Americas and Europe, while splitting its operations into four distinct regional divisions [1].

Despite these challenges, HSBC expressed confidence in its long-term prospects, citing revenue growth across its four business lines and a target of double-digit income growth from fees and other income over the medium term. Elhedery stated, “In the first half, we continued to execute our strategy with discipline… This gives us confidence in our ability to deliver our targets.” However, the bank faces immediate hurdles, including the need to secure shareholder support for its new strategic direction and replacing outgoing chairman Mark Tucker by September [1].

Source: [1] HSBC falls short on pre-tax profits (https://coinmarketcap.com/community/articles/6889dcacb68c6f644094b346/)