HSBC doubles profits as bad debt fears ease – but the bank is right to remain cautious

HSBC spread a little sunshine around the City, starting the week by reporting that it had more than doubled its profits for the first half of the year to $10.8bn (£7.8bn).

A major driver of the surge was the receding of fears that the pandemic would set off a bad debt bomb. As a result, HSBC was able to release a net $700m from its reserves, having squirrelled a net $6.9bn away in the first half of 2020 to cover bad loans that mostly didn’t go bad.

This made a big difference to the results. The bank said it “more than offset” the fact that revenues took a 4.5 per cent tumble when compared to this time last year, partly as a result of ultra-low interest rates around the world, which squeeze banks’ margins and generally make their lives difficult.

The moves central banks have made to stave off an economic meltdown have been complemented by government interventions which have worked out rather better for the banks. Their impact could be seen across almost all of the results which have been trickling out over the last few weeks.

Back to HSBC, which is in the throes of yet another of those restructurings that will result in the loss of thousands of jobs while pivoting the bank further towards Asia and making its sprawling operations less sprawling.

CEO Noel Quin said the bank was profitable in all its regions and the dividend is back. Share buybacks are also being discussed. By some measures, HSBC is actually being fairly conservative with its capital, particularly when you consider the relatively strong position it is in.

But this could prove wise. The pandemic has made a habit of dumping on the best-laid plans of mice, women, men and politicians. Bankers are far from immune.

If the rain starts to fall again – and there are justifiable fears that it could get quite heavy in the autumn – HSBC will have plenty of brolly combined with the knowledge that it won’t have to hold it up alone.

For those still carping about the dividend’s removal last year, HSBC said it was still on track to pay out between 40 and 55 per cent of reported earnings by the end of this year.

The Bank of England’s decision to force all its charges to suspend their payouts last year generated considerable unhappiness at HSBC.

The move prompted the by now standard round of unnamed senior sources muttering about quitting London, where the bank is headquartered despite the vast majority of its earnings coming from Asia.

This is a road HSBC has been down before. You may remember the fuss created over George Osborne’s banking levy, introduced in the wake of the financial crisis, which coincided with a formal review of the bank’s London HQ.

Had the bank quit, it would have delivered quite the blow to the City of London’s prestige. Needless to say, the levy was tweaked, HSBC stayed put.

On the issue of dividends, it didn’t get its way. But HSBC’s voice in the corridors of power is still loud, and often heard.

That is not the case in China, where the bank has to do what it’s told, including supporting the hugely controversial security law imposed on Hong Kong and freezing the accounts of activists, including former Hong Kong lawmaker Ted Hui, arrested in November of last year in the wake of a protest at the city’s legislative body.

Quin said he was “not in a position as a banker to be able to judge the motives or validity of [a] legal instruction from a law enforcement authority”, in response to the hard questions raised by MPs in Britain. Nor, he said, was he in a “position to make a moral or political judgment on these matters”.

Of course not. But with the bank’s operations straddling a live geopolitical fault line, beneath which bubbles hot lava, it surely won’t be the last time Quin faces such questions.

Could HSBC ultimately find a future decision about its headquarters made for it? It’s quite possible to see that fault line ultimately splitting the bank in two. The instability emanating from it will still be with us when the pandemic is (hopefully) just a bad memory.