HSBC’s pre-tax profit tanks 48% in the first quarter as COVID-19 weighs on performance

HSBC (LON: HSBA) released its Q1 earnings on Tuesday that fell short of analysts’ estimates. The bank said that the crash in oil prices and the Coronavirus pandemic is expected to fuel loan losses in 2020. Setting more money aside to cover for loan losses, HSBC took a hit to its financial performance in the first quarter.

At £2.59 billion, the bank’s Q1 pre-tax profit declined 48% as compared to the same quarter last year. Analysts had forecast £2.94 billion in pre-tax profit for HSBC in the recent quarter. The bank also said that its revenue plunged 5.1% in the first quarter to £10.98 billion versus the year-ago figure.

HSBC expands its expected credit impairment charges

Citing low oil prices and economic blow from the Coronavirus, Europe’s largest bank by assets expanded its credit impairment charges (expected) by £1.92 billion to £2.41 billion. The bank also attributed a significant charge to its corporate exposure in Singapore.

HSBC refrained from divulging the name of the Singapore company. Reportedly, however, Hin Leong (oil trader) owed a significant sum of money to HSBC. After the crash in oil prices, HSBC resorted to judicial management that highlighted its ongoing financial struggles.

Other noticeable figures in HSBC’s report on Tuesday included a 1.54% net interest margin that came in lower than 1.59% reported last year. At £6.30 billion, the bank posted a 4.5% decline (year over year) in operating expenses. HSBC made 7.2 pence of earnings per share in the recent quarter versus 17 pence per share in the comparable quarter of 2019.

HSBC to slash operating expenses and delay restructuring plans

To avoid a further slump in revenue in 2020, HSBC expressed plans of slashing operating expenses. The move, as per the bank, is likely to weigh heavily on its profitability this year. It also delayed a few elements of its restructuring plans that were originally announced in February. The bank expects it to help minimize the job losses amidst the ongoing health crisis.

HSBC climbed just over 1% in early trading on Tuesday. At 413 GBX per share, the bank is currently around 30% down year to date in the stock market. Its performance in 2019 was also downbeat with an annual loss of a little under 10%.

At the time of writing, HSBC is valued at £84.23 billion and has a price to earnings ratio of 17.34.