With Better Than Expected Profits, HSBC Forecasts Brighter 2021 Outlook

HSBC has forecast a bright economic outlook as it reported better than expected profits. For the quarter from January-to-March, an income of $5.8bn was reported by the largest bank of Europe in terms of assets which was higher than the $3.2bn reported by the company in the same period a year ago.

Asia, the region where the bank does much of its business, accounted for more than half of the profits of the bank. HSBC also released some of the cash that it had set aside for bad loans that it expected to incur because of the Covid-19 pandemic because of its improved economic outlook.

$3bn had been set aside by the bank last year as cover for bad debts. The bank has now released $400m of that amount after “an improvement in the economic outlook, notably in the UK”, the bank said.

The profits of the firm were also boosted by solid growth in its mortgage business in the United Kingdom and Hong Kong. The bank is also going ahead with its restructuring plan which includes cutting down on about 35,000 jobs and altering focus on earning more client fees in Asia, the bank said.

In 2020, the bank had reported a 34 per cent drop in profits partly because of the impact to the global economy due to the Covid-19 pandemic and this latest growth in profits year on year marks a turnaround of the bank from last year’s dismal performance.

The bank had made a “good start to the year”, said Noel Quinn, HSBC’s group chief executive.

“Global banking and markets had a good quarter, and we saw solid business growth in strategic areas, including Asia Wealth and trade finance, and mortgages in Hong Kong and the UK. We also strengthened our lending pipelines in our retail and wholesale businesses,” he said.

The Asian business of the bank accounted for the majority of its profits, which was at $3.8bn. However the bank reaffirmed its profitability in all regions that it operates in with a profit of $1bn from the UK, its home market.

The bank however also cautioned against continued uncertainty because many countries are only just emerging from the pandemic and that is happening in different speeds and with government are reducing fiscal support, even as the firm said that it expected to witness better economic conditions in 2021.

And even though the profits of the company soared, it reported a 5 per cent drop in its revenues to $13bn because of the effect of reduction in interest rates in all global businesses.

Lending will continue to grow in 2021, the bank expects, even though the growth is dependent on the speed of global recovery from the pandemic, the bank said.

“There doesn’t look like there is an immediate cure for the bank’s underlying ailment, the ultra-low rates plaguing the banking sector,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“HSBC is not alone in feeling the squeeze of net interest margins, which tightened again slightly over the quarter, but other banks with huge investment banking arms have been able to capitalise on the trading surge over the past year.

“The bank notes that the outlook remains highly uncertain. HSBC’s resilience could be tested as governments remove the arms of support that have been wrapped around their economies to help them limp through the crisis.”

(Adapted from CityAM.com)

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