Plummeting HSBC profits foretell apprehension amid expected fallout from Trump's trade war
Bracing for More Tumult: HSBC's Tackle on Trade War Volatility
HSBC is gearing up for a stormy market landscape plagued by trade war-induced volatility and a hushed lending environment. After a 25% drop in profits at the beginning of the year, the banking giant is expecting rough waters ahead.
In a meeting with investors, the bank steered clear of rosy forecasts, explaining that heightened economic uncertainty driven by 'protectionist trade policies' has led to both economic expectancies and financial markets floundering. This volatile situation has directly affected consumer and business sentiment, and HSBC anticipates demand for lending to remain subdued in 2025 as a result.
Despite the grim outlook, the bank shone a positive light on its Q1 profits. HSBC reported a pre-tax profit of $9.5 billion, a figure that exceeded financial experts' predictions, thanks to a robust performance across various divisions like its international wealth and premier banking, and Hong Kong business segments.
Even with such encouraging results, HSBChad to set aside $900 million in expected credit losses for the quarter—$150 million of which was a direct response to the increased economic uncertainty.
HSBC kicked off a significant organizational restructuring in October under the guidance of its new CEO, Georges Elhedery. The objective is to make the bank leaner, more agile, and responsive to market changes. The bank has been shedding jobs while cutting costs in a $1.2 billion cost-saving push.
HSBC warned it could potentially book an additional $500 million in scenario-based charges if higher tariffs lead to a global economic slowdown. But despite these challenges, the bank remained optimistic, launching a $3 billion share buyback program on Tuesday and reiterating its full-year profit guidance.
"Our strong results this quarter demonstrate momentum in our earnings, discipline in the execution of our strategy, and confidence in our ability to deliver our targets," said Elhedery. "We continue to support our customers through this period of economic uncertainty and market unpredictability, which we enter from a position of financial strength."
HSBC shares climbed 2% to 850.2p in early trading, marking a modest 8.5% increase for the year despite a sell-off following the bank's reassessment of its goal to achieve net-zero carbon emissions across the business by 2030.
Digging Deeper:
The reason for the muted lending outlook boils down to macroeconomic uncertainties driven by trade tensions and volatile financial markets. These situations have created ripples in both business and consumer confidence, causing demand for lending to remain restrained. Factors affecting this situation include heightened US-China trade tensions and reciprocal tariffs impacting HSBC's core Asia-focused operations, as well as unpredictable GDP growth forecasts exacerbating corporate investment and borrowing decisions.
Banking net interest income is projected to be approximately $42 billion for 2025, but interest rate volatility and muted loan growth may challenge this target. The bank plans to limit operating expense growth to 3% this year while restructuring to save $0.3 billion in costs, aiming for $1.5 billion in annualized savings. HSBC remains hopeful, reaffirming a mid-teens return on tangible equity (RoTE) target through 2027, supported by a deposit-rich balance sheet and conservative credit approach to navigate market turbulence. However, sustained trade tensions could intensify credit losses, especially in sectors that are heavily dependent on exports in Asia.
- The muted lending outlook is primarily due to macroeconomic uncertainties driven by trade tensions and volatile financial markets.
- These conditions have created ripples in both business and consumer confidence, causing demand for lending to remain restrained.
- Factors affecting this situation include heightened US-China trade tensions and reciprocal tariffs impacting HSBC's core Asia-focused operations.
- In addition, unpredictable GDP growth forecasts are exacerbating corporate investment and borrowing decisions.
- Even with these challenges, HSBC plans to achieve a mid-teens return on tangible equity (RoTE) target through 2027, supported by a deposit-rich balance sheet and conservative credit approach to navigate market turbulence.
