- HSBC plans to reduce its sales and trading and research presence in Europe
- US corporate and retail bank to be reshaped, with retail branches cut by 30 per cent
HSBC, the largest of Hong Kong's three currency issuing banks, plans to reduce its staff by as much as 15 per cent, cut costs by an additional US$4.5 billion, and shrink its investment bank in Europe and the United States, part of a broad overhaul by interim chief executive Noel Quinn to secure a permanent role in the bank's top job.
The bank said it plans to lower its annual cost to US$31 billion or less by 2022, and expects its headcount to shrink to 200,000, part of a "high-level restructuring" over the next two years. The updated strategy, which also includes several senior management changes, is the third major reorganisation in a decade for Europe's biggest bank by assets.
HSBC, which traces its root to Hong Kong and Shanghai during the British colonial era, said it would reduce capital deployed to the rates businesses and exiting capital and leverage intensive product lines in Europe. It would also reshape its US operations into an international client-focused corporate bank and cut the size of its American retail branch network by about 30 per cent.
"As we pursue our plan to deliver greater value for our customers and shareholders, we will continue to seek to grow the parts of the business where we are strongest," Quinn said in a press release. "However, given the changed economic environment, we must also act decisively to reshape areas of persistent underperformance, particularly in global banking and markets in Europe and the US. We also aim to simplify the group to accelerate the pace of change and reduce the size of its cost base."
The latest round of cost cuts comes as Hong Kong, HSBC's largest market, has been clobbered by anti-government protests that started in June 2019, and a coronavirus outbreak since January that has sickened more than 73,000 people around the world.
Visitors stayed away from the city, with the daily average number of arrivals plunging to 3,000 in February, from almost 200,000 in the first half of 2019, adding to the woes of an economy in its first technical recession in a decade. In an unprecedented move, 50 retailers and cafes with 200 outlets in the city staged a strike in 14 shopping centres across Hong Kong to demand for rental cuts amid their sales slump.
Adding to their woes, the bottom lines of global banks have been pressured by historically low interest rates " including negative rates in Europe " that shaved their profitability to razor-thin margins.
HSBC's fourth-quarter revenue rose by less than 1 per cent to US$12.7 billion. Its net interest income declined slightly to US$7.65 billion, while operating expenses nearly doubled to US$17.1 billion, including the goodwill impairment.
Its adjusted pre-tax profit was US$4.3 billion during the quarter, beating a consensus estimate by Bloomberg, while net loss widened to US$5.5 billion, swinging from a US$1.5 billion profit a year earlier after factoring a goodwill impairment of US$7.3 billion associated with its investment bank and commercial unit in Europe and US$400 million in restructuring charges.
The bank's 2019 annual pre-tax earnings fell 33 per cent to US$13.35 billion, missing analysts' estimates, according to Reuters.
Shares of HSBC fell as much as 3 per cent after the announcement. The company's stock declined 2.6 per cent to HK$57.85 in Hong Kong in early afternoon trading.
London-based HSBC earns much of its revenue in Asia. Pre-tax profit in its Hong Kong operation rose 2 per cent to US$2.61 billion in 2019 even as HSBC lowered its 2020 outlook for the Asian economy amid the coronavirus outbreak. The bank expects business to improve as most of the effects of the outbreak are felt in the first quarter.
Profit at its Hang Seng Bank subsidiary rose 2.6 per cent to HK$24.84 billion (US$3.2 billion), missing analysts' forecasts as the lender earned less from fees, while provisions for bad debt rose amid the city's recession.
Impairment charges rose to HK$1.84 billion last year, 84 per cent more than a year earlier. Hang Seng Bank's shares fell by as much as 1.3 per cent to HK$162.30 before earnings were announced.
While cutting costs in Europe and the US, HSBC said planned accelerate investments in its global markets and banking business in Asia and the Middle East and shift more resources to those regions, while maintaining a global investment banking hub in London.
The London-based bank, which generates much of its revenue in Asia, said it would suspend share buy-backs over the next two years during its restructuring. HSBC did not indicate how many jobs could be lost as part of the restructuring, but said 60 per cent of its cost reductions would come in its middle and back office and 25 per cent would come from the investment bank. More than half of the bank's staff are in Asia.
A "different approach" was needed by the bank's future CEO to navigate the "complex and challenging environment" the bank was facing, HSBC's chairman Mark Tucker said in August. HSBC's key markets in Asia face headwinds from an 18-month trade war between the United States and China, which has weighed on business sentiment.
The bank appointed Barry O'Byrne as chief executive of its global commercial banking business, and named Charlie Nunn as head of the newly combined wealth and personal banking business. AntOnio SimOes would step down as CEO of global private banking and leave the bank later this year, HSBC said.
HSBC's search for a permanent chief executive is ongoing, the bank said, adding that it expects to conclude the search within six to 12 months of its announcement last August when Quinn stepped in as interim CEO after the departure of John Flint. Since taking over, Quinn has restructured the bank's European management, reshuffled the management of HSBC's banking and global markets business and named a new executive to oversee strategic execution in its US business.
The environment has only got more complex since Quinn took over as Hong Kong's economy has been weakened by months of anti-government protests the coronavirus outbreak. HSBC is among the city's biggest banks that have committed to provide relief to struggling consumers and small- and medium-sized enterprises, including offering interest-only mortgage payments, relief loans and waivers of certain fees.
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