U.S. and British politicians strongly criticized HSBC in June after it publicly signaled support for a security law Beijing was imposing on Hong Kong.
Photo: anthony wallace/Agence France-Presse/Getty ImagesLONDON— HSBC Holdings HSBC -0.48% PLC’s net profit fell in the second quarter as the impact of the coronavirus pandemic complicated the bank’s efforts to refocus on Asia while dealing with rising U.S.-China political tensions.
Profit for the global bank with Asian roots fell 96% to $192 million in the three months ended June. The London-based lender set aside $3.83 billion in provisions for losses from loans during the quarter, almost seven times more than in the same period last year. HSBC set aside $3 billion of provisions in the first quarter.
“Due to the Covid-19 pandemic, much of the global economy slowed significantly,” HSBC Chief Executive Noel Quinn said in a statement. “Current tensions between China and the U.S. inevitably create challenging situations for an organization with HSBC’s footprint. However, the need for a bank capable of bridging the economies of east and west is acute.”
Mr. Quinn said he would accelerate plans announced in February to streamline the bank’s operations by shedding 15% of its 235,000-strong workforce and cutting business lines and customer relationships across the U.S. and Europe to refocus on its more profitable Asian heartland. HSBC was founded in Hong Kong and Shanghai in the 1860s and makes most of its profit in Hong Kong and mainland China.
The bank joined other British lenders earlier this year in canceling dividend payouts at the request of the Bank of England, a move aimed at shoring up their capital buffers against economic shocks stemming from the pandemic. This hit the bank’s mom-and-pop investor base in Hong Kong hard, and its shares have fallen 42% this year.
The bank’s rebalancing toward China has become more complicated because of rising political tensions. In June, U.S. and British politicians strongly criticized HSBC after its Asia chief publicly signed a petition backing a security law Beijing was imposing on Hong Kong. U.S. Secretary of State Mike Pompeo called HSBC’s support for the law a “show of fealty” that “seems to have earned HSBC little respect in Beijing.”
After supporting the law, HSBC drew strong criticism in the world’s most populous nation for its involvement in a U.S. legal case against China’s Huawei Technologies Co.
Chinese newspaper People’s Daily wrote on July 24 that HSBC set “traps” for Huawei to break U.S. sanctions against doing business in Iran. HSBC said the U.S. Department of Justice made formal requests for information about Huawei, a former HSBC client. HSBC said it wasn’t involved in the DOJ’s decision to investigate Huawei or to arrest Huawei finance chief Meng Wanzhou. Ms. Meng and Huawei deny any wrongdoing.
“HSBC does not have any hostility towards Huawei and did not ‘frame’ Huawei,” the bank said in a July 25 statement.
As HSBC strains to maintain good relations with both Washington and Beijing, executives have become increasingly exasperated by the rising political tensions. Sherard Cowper-Coles, HSBC’s head of public affairs and a former British ambassador to Afghanistan, in June described the tension between the U.S. and China as “an ideological war reminiscent on the American side of the depths of McCarthyism.”
HSBC’s U.K. unit reported a pretax loss of $857 million in the second quarter, compared with a $157 million profit in the same period last year. HSBC is the latest bank to report weak results at its operations in the U.K., which has recorded more deaths from coronavirus than any other European country.
Write to Simon Clark at simon.clark@wsj.com
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