HSBC added $200m to UK loan loss charges

The UK’s chaotic mini-budget prompted HSBC Holdings Plc to increase its loan loss provision by $200 million in the third quarter, another sign of the economic turmoil created by the aborted fiscal statement.

The lender took a $279 million charge against its UK unit in the period, according to an analyst presentation on Tuesday. That included “$200 million of additional allowances for heightened economic uncertainty” in the UK, exiting Chief Financial Officer Ewen Stevenson said on a call with journalists.

Investors jettisoned UK assets after Prime Minister Liz Truss’ economic plan rattled markets. It sparked a Bank of England intervention in the gilts market and prompted her downfall. Her replacement, Rishi Sunak, has warned the UK faces a “profound economic challenge.”

While the London-headquartered bank joined other global banks in posting profits that beat analyst estimates thanks to a rise in net interest income, its loan loss provision was almost a third higher than a Bloomberg-compiled consensus, the lender said in a statement.

Central banks globally, including the Federal Reserve and the Bank of England, have raised rates rapidly in the past few months in a bid to contain inflation that’s been running at four-decade highs. HSBC is the first major UK bank to report how it’s fared during a turbulent third quarter.

The bank said net interest income, a key measure of profitability, hit $8.6 billion, helping lift adjusted pretax profit by 18% to $6.5 billion and beating analysts’ estimates. That was the best third quarter for NII, which measures what the bank makes from lending minus interest paid on deposits, in more than eight years.

“Our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates,” Chief Executive Officer Noel Quinn said. “We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023.”

HSBC is continuing to fend off calls to consider a breakup from major shareholder Ping An Insurance Group Co.

—Bloomberg