The interim chief executive of HSBC has announced plans to “remodel” large parts of the bank as the lender reported a 24 per cent decline in third-quarter net profit and abandoned its main financial target.
Noel Quinn, who was made interim CEO in August, said that some areas of the business had “held up well in a challenging environment” but performance at others — mainly in Europe and the US — “was not acceptable”.
“Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth. We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities,” he added.
Mr Quinn became interim CEO in August following the abrupt ousting of John Flint, who had lost the confidence of the bank’s board of directors.
The FT reported this month that Mr Quinn had embarked on a plan to cut costs and divest some businesses, threatening up to 10,000 jobs at the bank. HSBC employs about 237,000 people.
The Asia-focused lender reported third-quarter net profit had fallen by 24 per cent to $2.97bn, about 14 per cent below the consensus analyst forecast. Revenues fell by 3.2 per cent to $13.35bn, undershooting analyst expectations by 3 per cent.
The bank also abandoned its main profitability target — to generate a return on tangible equity of more than 11 per cent next year — blaming a “challenging” environment that meant “the outlook for revenue growth is softer”.
Hong-Kong listed shares of HSBC, which have lost 11 per cent of their value over the past six months, fell by as much 3 per cent in afternoon trading.
HSBC said it would adjust its cost base and rebalance its business, moving capital from low-returning areas of the bank to high-growth areas.
The bank warned the restructuring and a continued “deterioration in the revenue environment” could force it to take a string of impairment charges that would weigh on its profitability. However, it said it intended to keep its dividend and maintain its core equity tier 1 ratio — a key measure of balance street strength — at above 14 per cent.
The bank posted a return on tangible equity, a key measure of profitability, of 6.4 per cent for the third quarter, versus 10.9 per cent a year ago. This was well below analyst forecasts of 9.5 per cent.
Despite fears that the escalating protests in Hong Kong, where HSBC is the biggest lender, would hurt the bank, the lender said it had put in a “resilient performance” in the region.
However, it signalled that it expected the demonstrations to hurt its business in the future and increased the amount of money it sets aside to cover loan defaults by 74 per cent to $883m, including a “charge to reflect the economic outlook in Hong Kong”.