'Exceptional volatility': HSBC profits dive 29% on Brexit and China

REUTERS/Bobby Yip

Hong Kong (AFP) and London (BI) - HSBC said on Wednesday that its pre-tax profit plunged by 29% in the first half of 2016 to $9.7 billion (£7.2 billion), after "exceptional volatility" during a turbulent six months ending in Britain's decision to leave the EU.

Brexit was the biggest hit to the bank, with pre-tax profit in the second quarter of the year — when the vote was — plunging by 45%.

Group chairman Douglas Flint said Brexit had "not been anticipated" but insisted that the bank had come through the period "securely."

CEO Stuart Gulliver says it is "too early to tell which parts [of the bank] may be impacted and to what extent."

Here are the key numbers from HSBC's first 6 months of the year:

• Pre-tax profit, down 29% to $9.7 billion (£7.2 billion);
• Revenue down 4% to $27.8 billion (£20.8 billion);
• $2.5 billion (£1.8 billion) share buyback announced;
• Rate of return on shareholder equity 7.4%, down from 10.6% in the first half of last year.

In a statement announcing the results, Flint blamed the performance on "spikes of uncertainty" that led to "lower volumes of customer activity and higher levels of market volatility."

He says:

"Concern over the sustainable level of economic growth in China was the most significant feature of the first quarter and, as this moderated, uncertainty over the upcoming UK referendum on membership of the European Union intensified. Demand for credit for investment slowed as a consequence.

"Equity market activity was also markedly lower, particularly in Hong Kong, reflecting both economic uncertainty and weaker market pricing, which was exacerbated by net selling from sovereign funds impacted by lower oil prices. The period ended with exceptional volatility as financial markets reacted to the UK referendum decision to leave the EU, a result that had not been anticipated."

HSBC's profit fall comes a week after Lloyds announced it was cutting 3,000 extra jobs and closing down a further 200 bank branches, blaming Brexit for the decision.

As a result of "the current uncertain economic and geo-political environment, together with our projections for an extended period of low interest rates," Flint says the HSBC board has decided "it would be appropriate to remove a timetable for reaching our target return on equity in excess of 10%."

On Brexit, Flint says: "Now is a time for calm consideration of all the issues at hand and careful assessment of how prosperity, growth and a dynamic economy for both the UK and the rest of Europe can be ensured following an orderly transition period."