International investment bank HSBC has announced that it will be suspending plans of mass layoffs of tens of thousands of workers after its profits fell by nearly 50%.
HSBC said it will put on hold plans for mass layoffs and will increase the amount of money it is setting aside to cover bad loans after its pre-tax profit went down to $3.2 billion in the first quarter, which was a 48% decline compared to last year.
Profit Losses
The London-based multinational investment bank and financial services holding company will ramp up its allowance for expected credit losses for 2020 to as much as $11 billion, increasing by almost $2 billion compared to what it had set aside at the end of last year.
HSBC said it expected the first quarter credit losses to reach $3 billion last quarter partly due to the coronavirus as well as the ongoing decline in oil prices.
In a statement, the company said: "The outlook for world economies in 2020 has substantially worsened in the past two months."
The coronavirus pandemic first affected Asia, where HSBC gets a big chunk of its earnings. In previous quarters, the bank derived nearly 90% of its profit from the region.
However, the lender noted that performance in the region was actually "resilient" than what was projected, with profit in Asia falling by around 25% during the quarter while North America and Europe suffered worse profit declines.
Mass Layoffs Suspended
HSBC also decided to suspend parts of the massive restructuring plan it announced in February, which included laying off 35,000 workers and dramatically overhauling its business.
Chief executive officer (CEO) Noel Quinn, who served on an interim basis until his permanent appointment last month, said the restructuring would have made up “one of the deepest restructuring and simplification programs in the bank's history.”
The announced job cuts, which represent 15% of the total workforce, far exceeded analysts’ forecast of around 10,000 in workforce reduction. HSBC currently operates in over 50 countries across North America, Europe, the Middle East and Asia, employing more than 40,000 people in the UK, where its headquarters is located.
Among those 40,000, around 10,000 are based at its head office in Canary Wharf in London while another 2,000 are located at its new UK head office in Birmingham. HSBC has mentioned that some of the job cuts will be in its European and US investment banking businesses.
The company attributed the decline in 2019 profits to $7.3 billion in write-offs related to its investment and commercial banking operations in Europe.
Quinn added that the bank is suspending the "vast majority" of that restructuring plan for now in order to quell uncertainty for employees.
The international bank will also put on hold its plan to get rid of $100 billion in assets, which is aimed at helping reduce the restructuring costs for this year.
Quinn pointed out: "The economic impact of the Covid-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year. We continue to press forward with the other areas of our transformation."
