The bank increased its estimate of the total bad debt charges it could take this year to between $8 billion and $13 billion from $7 billion-$11 billion
HSBC Holdings PLC warned its bad debt charges could blow past a previous estimate to $13 billion this year and said its profits more than halved, as the coronavirus pandemic hammered the bank's retail and corporate customers worldwide.
The results from Europe's biggest bank by assets on Monday reinforced the trend of lenders across the world increasing their buffers to absorb souring loans at a time when companies - from aviation to retail and hospitality sectors - are reeling from the impact of Covid-19.
HSBC reported a pre-tax profit of $4.32 billion for the first six months this year, lower than the $5.67 billion average of analysts' forecasts.
The bank increased its estimate of the total bad debt charges it could take this year to between $8 billion and $13 billion from $7 billion-$11 billion, reflecting worse-than-expected actual losses in the second quarter and expectations of a steeper decline in the economy.
"What we have seen this quarter is quite a sharp shift in economic outlook for the global economy, the famous 'V' has got a lot sharper and as a result we have materially increased our provisions," Chief Financial Officer Ewen Stevenson told Reuters.
HSBC's business in Britain has been hit particularly hard, Stevenson said, as it took a $1.5 billion charge against expected credit losses.
While the bank's results were bolstered like those of its US and European peers by higher revenues from fixed income trading, analysts said investors were likely to be disappointed by the higher forecast bad debt charges.
Its Hong Kong listed shares dropped as much as 4.7% on Monday afternoon, outpacing a fall in the local benchmark, to their lowest since March 2009.
The bank's credit impairment provisions in the first-half soared to $6.9 billion, compared to $1 billion in the same period a year earlier. It had set aside $3 billion to cover loan losses in the first quarter.
Impairment charges included a $1.2 billion writedown on the value of software it owns, mainly in Europe, it said.
While HSBC's core capital ratio, a key measure of financial strength, rose to 15% at the end of June thanks to favourable regulatory changes, the bank warned the metric would likely decline this year as falling credit ratings hit its risk-weighted asset ratio.
Its revenues fell 9% in the six-month period, as global interest rate cuts and declining market values on assets in investment banking and insurance outweighed higher trading income.
HSBC is continuing to review its long-term dividend policy, CEO Noel Quinn said in a statement.
The bank earlier this year halted payouts in response to a regulatory request in Britain, infuriating many of its retail investors who rely on it for income, particularly in Hong Kong.
Quinn told Reuters the bank's staff headcount has fallen by some 4,000 this year after it restarted a redundancy programme that was put on ice after the coronavirus outbreak.
The bank is aiming to cut costs by 3% this year from that restructuring as well as lower employee spending on travel and other items during the pandemic, he said.
Only a fifth of the around 9,000 staff in its headquarters in London's Canary Wharf district would be able to return to work in the near term for safety reasons, Quinn told Reuters.