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HSBC Halts Cuts, Warns of Virus Credit Losses Even With BOE Help

March 26, 2020, 1:03 PM

HSBC Holdings Plc warned it expects to book higher credit losses on the back of the coronavirus pandemic, even after regulators gave it more leeway to deal with unpaid loans. Europe’s largest bank also put its job-cutting program on hold.

As it prepares financial results, HSBC said that accounting standards require it to account for the virus’s impact on economies. The lender, which generates most of its revenue in Asia, said Wednesday in a filing that the disruption could have “adverse impacts” on the value of its assets, including its holding in China’s Bank of Communications Co.

HSBC had said last month that the virus would result in between $200 million and $500 million of first-quarter losses.

Last week, the Bank of England said financial institutions should be flexible when applying accounting rules, part of a package of moves by the central bank that included canceling annual stress tests. In Wednesday’s filing, HSBC cited the new IFRS9 accounting standard, which requires banks to forecast their outlook for gross domestic product. “An immediate impact in early 2020 will be higher expected credit losses driven by a change in the economic scenarios used to calculate ECL,” it said.

HSBC, which operates in more than 50 countries, also warned that central banks and regulators might start restricting movements of capital if the crisis persists. Such an outcome “may limit management’s flexibility in managing the business and taking action in relation to capital distribution and capital allocation,” it said.

Restructuring on Hold

A separate memo sent to staff shows how the pandemic has forced newly installed Chief Executive Officer Noel Quinn to put some of his ambitious cost-cutting plans on hold.

“We recognize that the question of job losses is a concern for many of you,” the memo said. “Because of the extaordinary impact of the COVID-19 pandemic, we have decided to pause, for the time being, the vast majority of redundancies associated with this program where notices have not already been issued.”

Last month, Quinn, who was interim CEO at the time, unveiled a restructuring that involved cutting the sprawling global lender’s 235,000-strong workforce by about 35,000 over the next three years. In Wednesday’s memo, the bank added that it would also cease new hiring, with the exception of a “small number of front-line and business critical roles.”

(Updates from first paragraph with previous loss estimate and details of pause to restructuring program)

To contact the reporters on this story:
Harry Wilson in London at hwilson57@bloomberg.net;
Alfred Liu in Hong Kong at aliu226@bloomberg.net

To contact the editors responsible for this story:
Ambereen Choudhury at achoudhury@bloomberg.net

Keith Campbell

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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