HSBC faces a $1.6 billion fine in China
HSBC Holdings Plc said it expects to record a pretax loss of as much as $1.6 billion after China’s Finance Ministry recapitalizes Bank of Communications Co.
The UK lender expects its stake in the Chinese lender to reduce from 19% to 16% as part of the move, Chief Financial Officer Pam Kaur said on a conference call with journalists. The ultimate accounting impact could range in size from $1.2 billion to $1.6 billion and will have no impact on HSBC’s capital ratios, Kaur said.
China is grappling with a slowdown in its real estate market, even as trade tensions with the US have escalated. The banking industry’s asset quality remains under pressure, with officials cautioning more bad debt could arise from the property market.
The country’s Finance Ministry is injecting $69 billion into four of the nation’s largest state banks — including Bank of Communications — via share placements, following through on a pledge to beef up capital buffers. Bank of Communications, one of China’s largest state-owned banks, said profit rose 0.9% last year as credit impairment declined, offsetting a margin contraction.
Chief Executive Officer Georges Elhedery said HSBC remains pleased with its “strategic” partnership with BoCom.
“We’re actually also very pleased with the recapitalization, the share issuance that BoCom has undergone, which allows them to improve their CET1 ratio and improve their capability to grow in the market and compete,” Elhedery said.
HSBC on Tuesday unveiled first-quarter pretax profit that beat estimates and unveiled a fresh $3 billion buyback program.
The UK lender is the world’s largest trade bank and is known for its role as a linchpin of commerce between the East and the West. While the company sought to reassure investors that it’s “well-positioned” to manage the challenges ahead, it warned that under a scenario of “significantly higher tariffs” it expects a “low single-digit percentage” direct impact on revenue and about $500 million in expected credit losses.
