(File photo: GT)
London-headquartered bank HSBC, which generates most of its profits from the Chinese market, saw its after-tax profits plunge 69 percent to $3.1 billion in the first half of 2020, amid its ongoing spat with Huawei and a series of reported misdeeds in the Chinese market that have ruined its reputation.
Analysts warned that the results could just be the beginning of the “consequences” the firm will experience in the Chinese market, and said the worst-case scenario for the bank would be an eviction from the Chinese market. Some observers earlier warned that HSBC may face a dead end in Huawei's case.
During the first six months of the year, the lender’s net operating income from Hong Kong totaled $8.7 billion, down 8 percent year-on-year. But that’s still far higher than its $2.44 billion net operating income from the US and $4.17 billion from the UK, reflecting the importance of the Hong Kong and neighboring Chinese mainland markets.
HSBC said its poor performance was mainly due to “the COVID-19 outbreak, geopolitical risk and market factors.”
“We are implementing the 2020-2022 plan at pace; reducing costs and risk-weighted assets, and redeploying investment and capital into areas of faster growth and higher returns,” said the bank.
“The pandemic is one of the main reasons that have led to the plunge in the bank’s revenues, but its recovery path is set to be tougher than those of its counterparts since it will be very difficult - or even impossible - for the Chinese market accept it again after it ‘sold Huawei,’” industry analyst Xiang Ligang told the Global Times on Monday.
The plunge in the British bank’s profits not only reflected the common challenges of most multinational companies amid the coronavirus pandemic, but also indicated HSBC has begun seeing the consequences of its reported collusion with the US in setting a political trap for Huawei, an observer who is closely watching the case told the Global Times.
HSBC is very likely to continue seeing its business scale down in China, and fewer companies will “have the courage” to entrust it with their business given its controversial business record. Its business will only continue to shrink in the next half given its ruined reputation, Xiang said.
HSBC has been scaling back its operations in China since it attracted significant criticism for its reported involvement in Hong Kong’s social unrest and its role in a US scheme to fabricate evidence and maliciously frame Meng Wanzhou, chief finance officer of Chinese telecommunications giant Huawei.
In July, the Shenzhen office of the China Banking and Insurance Regulatory Commission granted HSBC’s request to close its sub-branch in the city’s Longgang district, which has a population of over 2 million, according to a circular from the local financial watchdog.
The lender previously confirmed that it would resume a restructuring plan to cut as many as 35,000 jobs in the medium term and freeze almost all external hiring.
Observers noted that this spelt a dead end for the bank’s operations in the Chinese market. “Given heavy operational pressure, HSBC may face even more layoffs in the coming months and could lose the huge Chinese market altogether,” a Beijing-based observer who spoke on condition of anonymity told the Global Times.
The observer said the bank could be sued in Chinese courts and eventually pushed out of the market for its reported collusion with the US government.
HSBC had seen its shares trading in Hong Kong drop 2 percent by noon of Monday to a four-year low of HK$34.25 ($4.91).