US Business

Global bank giant HSBC on Tuesday announced tumbling profits for the third quarter on impairment charges linked to a weak economic outlook and its upcoming sale of French retail operations.

The London-headquartered bank’s share price slid seven percent in morning deals, making it the biggest-falling on the British capital’s FTSE 100 index.

HSBC also announced a boardroom shake-up with the appointment of a new chief financial officer, as the Asia-focused lender faces headwinds in China and global recession prospects.

Net profit slumped 46 percent to $1.91 billion in June-September compared with the third quarter last year. Pre-tax profit slumped 40 percent, HSBC added in a statement.

The bank was hit by a $2.4-billion write-off from the planned disposal of its French business next year, offsetting gains made by soaring interest rates.

HSBC has meanwhile set aside provisions totalling $1.1 billion for loans expected to sour.  

“Macroeconomic headwinds, including higher inflation and a weaker outlook, continue to weigh on the global economy,” it said. 

The bank specifically cited global uncertainty sparked by Russia’s invasion of Ukraine, the fall of the British pound and China’s troubled real estate sector.

Stripping out the one-off hits, adjusted pre-tax profit jumped 18 percent to $6.5 billion, beating analyst expectations.

The bank’s net interest income, measuring what it makes from lending minus interest paid on deposits, came in at $8.6 billion — its best third quarter in more than eight years.

– China strains –

“We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023,” said chief executive Noel Quinn.

The bank said HSBC senior executive Georges Elhedery would next year become chief financial officer, replacing Ewen Stevenson who departs the group.

Senior HSBC executives are next week expected in Hong Kong for a bank summit after the city recently lifted mandatory quarantine for all international arrivals. 

It comes after Chinese leader Xi Jinping tightened his grip on power by securing a third five-year term in office, handing top jobs to a number of loyalists who back his strict zero-Covid strategy.

The policy of lockdowns and other strict measures has been a major cause of the country’s economic woes and the prospect of more upheaval has sent chills through trading floors.

HSBC has vowed to accelerate a multi-year pivot to Asia and the Middle East, with ambitions to lead Asia’s wealth management market.

But the lender is under pressure from Chinese financial giant and major shareholder Ping An to spin off its Asian operations to unlock shareholder value amid tensions between China and Western powers.

HSBC, which has rejected the calls, added Tuesday that it was “exploring the potential sale” of its Canadian division.

In late-morning deals, HSBC shares were down 7.0 percent at 441.35 pence.

“Rising interest rates may be good news for banks but it’s all the other stuff which is causing them headaches right now,” noted AJ Bell financial analyst Danni Hewson.

“Concern about the impact of a slowing economy on bad debts and growth in the loan book is being exacerbated at HSBC by the departure of well-respected finance director Ewen Stevenson and the deteriorating situation in China.”

She added that “Stevenson’s departure may also make HSBC more vulnerable to pressure from its largest shareholder Ping An to break up the bank.”

US tech giant Meta confirmed a global outage was affecting its messaging service WhatsApp on Tuesday and said it was working to restore the app “as quickly as possible”.

“We’re aware that some people are currently having trouble sending messages and we’re working to restore WhatsApp for everyone as quickly as possible,” a Meta spokesman told AFP.

Problems with the hugely popular service were reported by monitoring site Downdetector and user complaints on social media on Tuesday morning.

Downdetector said thousands of WhatsApp users had been reporting problems since 0717 GMT, with a sharp spike appearing on its dedicated chart covering the past 24 hours.

Social media users said they were unable to connect to the app or send messages, although some reported a restoration of the service at around 0850 GMT.

The hashtag #whatsappdown was one of the most trending on Twitter across the world on Tuesday, while millions of messages on Meta-owned photo-sharing platform Instagram also flagged the outage.

Some Twitter users tried to find a funny side to the technical trouble, joking that Twitter would seek to exploit the situation and gain a flurry of new connections in the coming hours. 

The origin of the outage is unclear.

WhatsApp’s parent company Meta, formerly known as Facebook, suffered an unprecedented outage last year affecting its leading social media platforms including Facebook, Instagram, WhatsApp and Messenger.

The duration and scale of the disruption to the four services used by billions of people led to a major incident that Downdetector described as one of the largest ever observed.

At the time, Facebook acknowledged that the incident was due to an error on their part and not a technical problem.

WhatsApp, a free messaging service, crossed the threshold of two billion users worldwide in February 2020 and is one of the most popular apps.

Hong Kong and Shanghai stocks saw big swings Tuesday following the previous day’s rout after Xi Jinping tightened his grip on power in China, while other markets fought to maintain a rally fuelled by hopes of a less hawkish Federal Reserve.

Optimism about upcoming corporate earnings was providing some support, with Wall Street chalking up another strong day ahead of reports this week from big-name firms including Apple, Amazon and Microsoft.

Investors were keeping a wary eye on developments in China after Xi at the weekend was handed another five year term as leader and gave top jobs to a number of loyalists who back his strict zero-Covid strategy.

The policy of lockdowns and other strict measures has been a major cause of the country’s economic woes and the prospect of more upheaval has sent chills through trading floors.

The uncertainty resulted in a drop of more than six percent in Hong Kong on Monday, with tech firms — which have been hardest hit by Xi’s crackdown on a range of private-sector companies — taking the brunt of the pain.

The selling spread to New York later in the day, with the Nasdaq Golden Dragon China Index of 65 Chinese stocks diving 14 percent — its biggest fall on record — wiping more than $90 billion off their market value.

Any hopes for a big bounce from bargain-buying on Tuesday were short-lived with wild fluctuations in the city seeing the Hang Seng Index swing from gains to losses in a three percent band before finishing down 0.1 percent.

Shanghai struggled to get out of negative territory and ended slightly lower, while the onshore yuan sank to its weakest level since 2007 and the offshore yuan hit its lowest level since trading in it started 12 years ago.

“We’re certainly staying away from the Chinese market right now because the political scene is not favourable,” Laila Pence, of Pence Wealth Management, told Bloomberg TV.

“There’s a lot less risk in the US and just as much upside.”

The gloomy mood in China cast a shadow over an largely positive start to the week elsewhere as investors were cheered by a report suggesting the Fed could discuss at next week’s policy meeting the possibility of slowing down its pace of interest rate hikes.

The bank’s policy of ramping up borrowing costs to fight decades-high inflation has hammered global markets this year as investors worry that they will send the economy into recession.

“Investors are getting more confident that inflation will soften as the consumer rethinks massive purchases,” said OANDA’s Edward Moya.

“Fed rate hike expectations will remain volatile, but expectations are growing that a weaker economy will let the Fed pause their tightening after the February policy meeting.”

Tokyo, Sydney, Singapore, Wellington, Manila and Bangkok all rose, though Seoul, Taipei, Mumbai and Jakarta fell.

Focus is now on the release of earnings, with a sense of hope that the results will not be as bad as feared.

A fifth of S&P 500 companies have so far released their figures, with more than half beating expectations, according to Bloomberg News.

The yen hovered around 149 to the dollar after rallying Friday and Monday, with speculation swirling that Japanese authorities had intervened to support the struggling currency.

However, there are expectations it will continue to drop owing to the divergence between the Bank of Japan’s ultra-loose monetary policy and the Fed’s tightening.

The pound was also sitting around $1.13 as the choice of former chancellor Rishi Sunak as Britain’s next prime minister provided a sense of stability after weeks of uncertainty caused by former leader Liz Truss’s controversial debt-fuelled budget.

London was lower ahead of Sunak becoming Britain’s third premier in less than two months with a full in-tray including a cost-of-living crisis, boosting the economy and uniting his fractured Conservative party. Paris and Frankfurt rose.

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: UP 1.0 percent at 27,250.28 (close)

Hong Kong – Hang Seng Index: DOWN 0.1 percent at 15,165.59 (close)

Shanghai – Composite: FLAT at 2,976.28 (close)

London – FTSE 100: DOWN 0.4 percent at 6,984.49

Pound/dollar: UP at $1.1310 from $1.1281 on Monday

Dollar/yen: DOWN at 148.89 yen from 148.95 yen

Euro/dollar: DOWN at $0.9871 from $0.9876

Euro/pound: DOWN at 87.21 pence from 87.56 pence

West Texas Intermediate: DOWN 0.8 percent at $83.87 per barrel

Brent North Sea crude: DOWN 0.8 percent at $92.53 per barrel

New York – Dow: UP 1.3 percent at 31,499.62 (close)

Swiss banking giant UBS on Tuesday reported a fall in net profits in the third quarter, though still better than expected against a backdrop of falling revenues at the investment bank.

Profits at Switzerland’s largest bank were down 24 percent to $1.7 billion from July to the end of September.

The firm also saw its income fall by 10 percent to $8.2 billion in the same period, in a global economic and political environment that the group’s chief executive Ralph Hamers described as “increasingly complex”.

“Clients remain concerned about persistently high inflation, elevated energy prices, the war in Ukraine and residual effects of the pandemic,” Hamers said in a statement.

He said the energy crisis was also having an impact, including on their retail and small business clients in Switzerland.

“The impact of all this has been far-reaching –- affecting asset levels, market volatility, rates and investor sentiment across the globe.”

The figures nonetheless exceeded expectations, with analysts predicting a net profit of around $1.4 billion and revenues of $7.9 billion.

The bank’s revenues have dipped recently due to a fall in its mergers and acquisitions and a drop in income from market activity.

Income from its core wealth management operations also retreated year-on-year.

Large US retail banks have seen their profits fall in the last quarter amid a reduction in merger and acquisitions, stock market entries and fundraising.

Mechanical diggers are hard at work in the bleak landscape of the Moanda open-cast mine in Gabon, using giant jaws to rip out manganese and then dump the ore into trucks with a crash.

“We’re lucky here in Moanda. We find it about five to six metres (about 18 feet) below the surface,” said manager Olivier Kassibi, whose mine yields 36 tonnes of manganese each day.

Element number 25 on the periodic table, manganese has traditionally been perceived as a useful if humdrum material widely employed in steel and alloys.

More recently, though, the silvery metal has gained star status thanks to its emerging role in rechargeable car batteries, helping to wean the world off carbon-spewing fossil fuels.

Decarbonisation of the world economy will take centre stage at the UN’s COP27 climate talks in Egypt next month.

And as the great transition goes into higher gear, eyes are turning to Africa.

Its soil is rich in manganese, cobalt, nickel and lithium — crucial ingredients in cleaner technology for generating or storing power.

The Moanda region alone contains as much as a quarter of known global reserves of manganese, according to the Compagnie Miniere de l’Ogooue (Comilog), a subsidiary of the French group Eramet which operates the site.

– Curse of oil –

But hopes that the mineral boom will translate into a new dawn of prosperity in the world’s poorest continent are clouded by memories of what happened with oil.

In Africa’s oil-producing countries, black gold meant a gush of wealth for a well-connected few — but only drops for the needy majority.

Corruption sucked the dollars out of plans for roads, hospitals and schools, and environmental damage was often all that remained.

Africa’s potential in new-age minerals is “huge”, said the former chief economist of the African Development Bank, Rabah Arezki, who pointed out that reserves are not even known because so little exploration has been done.

But, he said, “there is very little reason to think that this windfall will benefit the people of Africa, particularly because of governance concerns.”

New metals deposits are following one another at a giddying pace.

In one example, Firefinch Ltd of Australia was looking for gold at Goulamina in southern Mali when it came across lithium, said Seydou Semega, geologist and local director of the firm.

Firefinch then created a local offshoot, Leo Lithium, and inaugurated the mine in early 2022 — a facility that it says could create 1,200 jobs and generate more than $100 million a year for Mali in taxes and dividends.

“Could Africa be the main source of lithium in the world?” asked Simon Hay, director of Leo Lithium. “Absolutely.” 

Comilog, which has operated the Moanda mine since 1960, claims the creation of 3,400 direct and 6,000 indirect jobs, a contribution of around $345 million per year to the national economy in various forms, plus millions of dollars in health and education provisions for the population.

“You need to have a social policy that is as committed as possible to share this wealth,” said its CEO, Leod Paul Batolo.

Comilog is keen to list its green principles, which include rehabilitating and replanting extraction sites, decarbonising the energy mix of its factories and “setting limits” on encroaching on wildlife areas.

But more generally, innumerable studies say the exploitation of resources in Africa has a long and dark history of unequal distribution of wealth, corruption, environmental damage and rights violations.

– ‘Value chain’ –

A big problem is that Africa is typically used as a source of raw materials, and rarely for processing them into goods of higher value, said Gilles Lepesant, a geographer at the French National Centre for Scientific Research (CNRS).

“If activity is limited to mining and extracting ore, Africa will reap no benefit from the energy transition in Europe. It’s absolutely necessary to invest in the value chain,” he said.

He pointed to the Democratic Republic Congo, whose soil is estimated to contain half of the world’s reserves of cobalt, as an example of something that is “both an opportunity and a curse.”

Poorly regulated mining leads to environmental damage and encourages child labour, a phenomenon that is hard to resolve when a family’s livelihood depends on it.

In the sector of tropical forestry, many rich countries have demanded traceability of wood and labour in order to reassure concerned consumers. 

But this is far harder to achieve in the metals used in car batteries and other gadgets, said Lepesant.

“In a lot of cases, the mined metal is exported for refining to other countries, for example China, and then combined with other metals, so it’s hard to know if the cobalt you have on your production line actually comes from such and such a mine in the Democratic Republic of Congo,” he said.

Analyst Hugo Brennan of British firm Verisk Maplecroft said African nations had to strike “a tricky balancing act” — providing incentives for investment while enforcing social and environmental standards — to ensure their mining boom does not go the same way as oil.

New Credit Suisse chief executive Ulrich Koerner, faced with trying to turn around the beleaguered bank following multiple scandals, is set to unveil his strategic road map on Thursday.

The pressure is on for Switzerland’s second-biggest bank after investors saw their money go up in smoke due to the collapse in share prices.

And the fragile economic outlook, recent market turbulence and rising interest rates could further complicate Koerner’s task as he reveals his restructuring plan.

– Pillar of Swiss banking –

With a turnover of nearly 22.7 billion Swiss francs ($22.65 billion) in 2021, Credit Suisse is second only to UBS in Swiss banking. 

But unlike its competitor which earned a net profit of $7.4 billion, Credit Suisse suffered a loss of 1.6 billion francs.

Founded in 1856 by Alfred Escher, the pioneer of Swiss railways, the bank then called Schweizerische Kreditanstalt grew to be a pillar of Swiss finance.

It financed the construction of the Gotthard tunnel, the development of large industrial companies and also insurance giants, including Swiss Life and the reinsurer Swiss Re.

The Zurich-based bank is a force on the international stage, especially since it took over the US investment bank First Boston in 1990. Present in some 40 countries, it employs 51,410 people worldwide.

– Too big to fail? –

Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.

At the end of June, its CET1 ratio — which compares a bank’s capital to its risk-weighted assets — stood at 13.5 percent: slightly less than HSBC Holdings but bigger than BNP Paribas, the two largest banks in Europe for which regulatory requirements are even higher.

Banking experts are therefore dismissing social media rumours earlier this month of a “Lehman Brothers moment”, referencing the US bank which collapsed, triggering the 2008 financial crisis.

“The bank will go through difficult times,” Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, told AFP, but “not because of a solvency risk or liquidities”.

Credit Suisse already went through a major restructuring under Tidjane Thiam, its chief executive from 2015 to early 2020.

The objective was to relieve the investment bank of its most volatile activities and to strengthen wealth management, through capital increases of six billion and then four billion Swiss francs.

In November 2021, another reorganisation was launched after a series of scandals that tarnished its reputation.

– Four divisions –

Since then, Credit Suisse’s activities have been split into four divisions: wealth management, asset management, Swiss banking, and its investment banking arm.

Wealth management — specialising in investments for rich clients — and Swiss banking — encompassing retail banking and other domestic activities — are considered the most stable.

In the first half of 2022, wealth management, which makes up 30 percent of the bank’s income, suffered 1.4 billion Swiss francs in capital withdrawals, mainly from European and Middle Eastern clients.

Swiss banking, which represents about a quarter of Credit Suisse’s turnover, was the only division to see its income increase.

The asset management branch was rocked by the bankruptcy of British financial firm Greensill, in which some $10 billion had been committed through four funds.

Meanwhile investment banking was hit by the implosion of the US fund Archegos, which cost Credit Suisse more than $5 billion.

While asset management accounted for only about eight percent of Credit Suisse’s revenue in the first half of the year, investment banking contributed 37 percent.

In the first six months, the investment banking division, which is active in fields including debt issues and mergers and acquisitions, racked up losses of 992 million Swiss francs after a loss of 3.7 billion francs in 2021.

Investors have long called for reform of the division, believing that it does not have the heft to take on the big US banks.

In 2011, the Ethos foundation, which represents pension funds in Switzerland, firmly opposed an issue of convertible bonds aimed at strengthening the branch, judging the investment banking arm too capital intensive.

The turquoise glimmer of open-air pools contrasts sharply with the dazzling white of salt flats in Latin America’s “lithium triangle,” where hope resides for a better life fueled by a metal bonanza.

A key component of batteries used in electric cars, demand has exploded for lithium — the “white gold” found in Chile, Argentina and Bolivia in quantities larger than anywhere else in the world.

And as the world seeks to move away from fossil fuels, lithium production — and prices — have skyrocketed, as have the expectations of communities near lithium plants, many of whom live in poverty.

But there are growing concerns about the impact on groundwater sources in regions already prone to extended droughts, with recent evidence of tree and flamingo die-offs.

And there are scant signs to date of benefits trickling down.

“We don’t eat lithium, nor batteries. We do drink water,” said Veronica Chavez, 48, president of the Santuario de Tres Pozos Indigenous community near the town of Salinas Grandes in Argentina’s lithium heartland.

A poster that meets visitors to Salinas Grandes reads: “No to lithium, yes to water and life.”

Lithium extraction requires millions of liters of water per plant per day.

Unlike in Australia — the world’s top lithium producer that extracts the metal from rock — in South America it is derived from salars, or salt flats, where saltwater containing the metal is brought from underground briny lakes to the surface to evaporate.

– Soaring prices –

About 56 percent of the world’s 89 million tons of identified lithium resources are found in the South American triangle, according to the US Geological Survey (USGS).

The world average price rose from $5,700 per ton in November 2020 to $60,500 in September this year. 

Chile hosts the westernmost corner of the lithium triangle in its Atacama desert, which contributed 26 percent of global production in 2021, according to the USGS.

The country started lithium extraction in 1984 and has been a leader in the field partly because of low rainfall levels and high solar radiation that speeds up the evaporation process.

But Chilean law has made it difficult for companies to gain concessions from the government since the dictatorship of Augusto Pinochet declared the metal a “strategic resource” for its potential use in nuclear bombs.

Only two companies have permits to exploit the metal — Chile’s SQM and American Albemarle, which pay up to 40 percent of their sales in tax.

In the first quarter of this year, lithium’s contribution to the public coffers surpassed those of Chile’s mainstay metal, copper, for the first time, according to government records.

Yet, the environmental costs are starting to stack up, and locals fear there is worse to come.

This year, a study in the journal Proceedings of the Royal Society B found a link between lithium mining and a decline in two flamingo species in the Salar de Atacama.

“The development of technologies to slow climate change has been identified as a global imperative. Nonetheless, such ‘green’ technologies can potentially have negative impacts on biodiversity,” said the study.

In 2013, an inspection at the SQM site — which reported using nearly 400,000 liters of water per hour in 2022 — found that a third of carob trees in the area had died.

A later study pointed to water scarcity as a possible cause.

“We want to know, for sure, what has been the real impact of the extraction of groundwater,” said Claudia Perez, 49, a resident of the nearby San Pedro river valley.

She was not against lithium, said Perez, provided there are measures to “minimize the negative impact on people.”

– ‘Leave us alone’ – 

Across the Andes in Argentina, the salt lakes of Jujuy host the world’s second-largest lithium resources along with the neighboring provinces of Salta and Catamarca.

With few restrictions on extraction and a low tax of only 3.0 percent, Argentina has become the world’s fourth-biggest lithium producer from two mines.

With dozens of new projects in the works with the involvement of US, Chinese, French, South Korean and local companies, Argentina has said it hopes to exceed Chilean production by 2030.

But not everyone is sold on the idea.

“It is not, as they say, that they (lithium companies) are going to save the planet… Rather it is us who have to give our lives to save the planet,” said Chavez, of Santuario de Tres Pozos in Jujuy province.

A neighbor, 47-year-old street food seller Barbara Quipildor added fiercely: “I want them to leave us alone, in peace. I don’t want lithium… My concern is the future of my children’s children.”

– Will locals benefit? –

About 300 kilometers (190 miles) north of Jujuy, the salar of Uyuni in Bolivia holds more lithium than anywhere else — a quarter of global resources, according to the USGS.

Half of the residents in the region — which is also rich in silver and tin — live in poverty, household surveys show.

The country’s former leftist president Evo Morales nationalized hydrocarbons and other resources such as lithium towards the start of his 2006-2019 mandate and vowed Bolivia would set the metal’s global price.

In Rio Grande, a small town near the Yacimientos de Litio Bolivianos (YLB) lithium plant, Morales’ plans were met with excitement.

In 2014 Donny Ali, a lawyer now aged 34, opened a hotel with the expectation of an economic boom. 

He called it Lithium.

“We were expecting major industrial technological development and more than anything, better living conditions,” he told AFP. “It didn’t happen.”

Hoping to boost the struggling lithium sector, the government opened it up to private hands in 2018, though domestic legislation has not yet denationalized the resource, and no private extraction has yet begun. 

“Some think that Bolivia will ‘miss the boat’ of lithium,” said economist Juan Carlos Zuleta. “I don’t think that’s going to happen.”

The real question, he said, is: when the boat comes, “will lithium extraction benefit Bolivians?”

The three countries are now looking towards battery manufacturing — possibly even building electric cars — as a way to turn the natural lithium bounty into a modern-day industrial revolution.

“There is a concrete possibility for Latin America to become the next China,” said Zuleta.

In the meantime, the Hotel Lithium stands empty.

China’s yuan hit a 15-year low against the US dollar on Tuesday, with investors spooked after President Xi Jinping gained complete dominance over the Communist Party at a key meeting last week.

The onshore yuan fell as much as 0.6 percent to 7.3084 per dollar, its weakest level since December 2007 and close to the lower limit of the trading band set by the central bank on Tuesday.

The offshore yuan — which is circulated outside mainland China and is more freely traded than currency in the domestic market  — fell to 7.3735 against the dollar, the weakest since clearing banks in Hong Kong were given the go-ahead to open renminbi accounts freely in 2010.

China’s currency has taken a hit, along with other major currencies, as the Federal Reserve’s hawkish tone sends investors piling into the dollar.

The announcement over the weekend that Xi had secured a third term as party leader, stacking leadership positions with proteges and allies, raised fears among investors that Chinese authorities would continue zero-Covid lockdowns and other policies that have hammered the economy.

The yuan, along with Hong Kong-listed Chinese stocks plummeted on Monday, despite the announcement of better-than-expected growth in the third quarter the same day.

One of the most pressing concerns is Xi’s zero-Covid policy, which continues to put tens of millions of people under rolling lockdowns that also shutter factories. 

China is the last of the world’s major economies to hew to the strategy, with Xi insisting in his speech to mark the end of the Chinese Communist Party Congress on Saturday that the country’s Covid response has been a success.

China is also battling an unprecedented crisis in its real estate sector — which makes up more than a quarter of the country’s GDP when combined with construction. 

Following years of explosive growth fuelled by easy access to loans, Xi oversaw a crackdown on excessive debt.

Property sales are now falling across the country, leaving many developers struggling and some owners refusing to pay their mortgages for unfinished homes.

But Yuting Shao, a strategist at State Street Global Markets, told Bloomberg News “the market reaction is a little bit overblown”.

“You still have to wait for more policy detail plans in the future,” she said.