HSBC Earnings Suffer as Hong Kong Office Market Sags

HSBC’s latest quarterly results showed a slump, partially due to a sag in Hong Kong’s commercial property market.

The London-based bank reported $1.1 billion in expected loan losses, marking about a $700 million increase from the second quarter of last year, The Wall Street Journal reported. It also expects higher expenses due to an organizational revamp under chief executive Georges Elhedery and counted a $2.1 billion paper loss against HSBC’s stake in China’s Bank of Communications among its shortcomings last quarter.

“These are paper losses. They are not actual losses,” Elhedery said, per the Journal. He noted that they didn’t affect the bank’s capital levels or its ability to pay dividends or buy back shares.

Hong Kong’s struggling office market has specifically made it hard for the bank to recover, according to the report. High interest rates and a slowdown in China’s economy have impacted property prices in the city, consistently counted among some of the most expensive in the world.

Elhedery said that while the residential market in Hong Kong has stabilized, in part due to efforts by the Hong Kong government, office rents and prices are feeling the heat due to oversupply in the city. HSBC’s affiliation with “substandard or credit-impaired” borrowers accounts for less than 5 percent of the corporation’s dealings in Hong Kong real estate.

Pre-tax profit for HSBC fell 29 percent year-over-year to $6.3 billion in the second quarter, according to the Journal. HSBC said it plans to buy back $3 billion of its shares to return money to shareholders.

At the same time, HSBC’s private bank is also being investigated by Swiss and French law enforcement agencies over alleged money laundering crimes. The probes are looking into two past banking relationships; last year, Switzerland’s financial regulator said HSBC had conducted two high-risk relationships without undergoing the adequate checks. The bank allegedly moved hundreds of millions of dollars from Lebanon to Switzerland and back again from 2002 to 2015.

— Chris Malone Méndez