HSBC to cut costs and shed assets in radical overhaul

Via Financial Times

HSBC has announced its most radical overhaul in years, unveiling plans to shrink its operations in the US and Europe and warning the coronavirus outbreak and unrest in Hong Kong could hurt its business in 2020.

The London-based lender said it aims to cut annual costs by $4.5bn and shed $100bn of assets by the end of 2022 in an attempt to kick-start its stuttering business.

“Parts of our business are not delivering acceptable returns. We are therefore outlining a revised plan to increase returns for investors,“ said Noel Quinn, interim chief executive. “We have already begun to implement this plan, which my management team and I are committed to executing at pace.”

HSBC said it expected the overhaul — the bank’s most radical since it narrowly survived a money-laundering scandal in Mexico in 2012 — to cost it around $6bn in restructuring costs and $1.2bn of costs related to disposals, the majority of which will fall this year and next.

HSBC said on Tuesday it would reduce the size of its investment bank by reducing the amount of assets adjusted for risk by around 35 per cent in Europe and 45 per cent in the US. It added it would redeploy the capital tied up in these businesses in higher-growth areas.

The bank also said it would shrink its sales and trading and equity research operations in Europe and move its structured products division from London to Asia.

In the US, where the bank has generated subpar returns for years, HSBC said it would “reposition” itself by slashing the size of its retail branch network by almost one-third, moving fixed-income trading to London, and reducing operating costs by 10 to 15 per cent.

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It said it would make significant changes to the structure of the group by merging the “back and middle office” sections of its investment bank and commercial bank, stopping short of a full-scale merger of the two divisions.

It also unveiled plans to close its global private banking unit, which provides services to rich clients. The division will be merged with its retail banking unit.

António Simões, who heads the private bank, is leaving HSBC as a result of the changes, making him the highest-profile casualty of the restructuring so far. He was once tipped as a potential future CEO of the group.

In addition, the bank will suspend share buybacks “given the high level of restructuring” although it said it would maintain its dividend and keep its core equity tier 1 ratio — a key measure of balance sheet strength — between 14 and 15 per cent.

HSBC said the changes would enable it to generate a return on tangible equity — an important measure of profitability — of between 10 and 12 per cent by 2022, compared with the 8.4 per cent it reported for 2019.

The bank unveiled the overhaul as it reported a pre-tax loss of $3.9bn for the fourth quarter, after taking a $7.3bn writedown on the value of its investment and commercial banks in Europe, which it blamed on “lower long-term economic growth rate assumptions.”

Adjusted pre-tax profits for the fourth quarter were up 29 per cent to $4.3bn, ahead of consensus estimates of $3.9bn.