HONG KONG/LONDON (Reuters) – HSBC Holdings PLC (HSBA.L) on Tuesday unveiled plans to cut $100 billion in assets, slash its investment bank and restructure in the United States and Europe, as it launched its biggest overhaul in years in a bid to improve returns.
The restructuring announcement comes against the backdrop of its 2019 profit before tax dropping 33%, hit by one-time write-offs linked to its investment banking and commercial banking businesses in Europe.
The wider strategy overhaul also comes amid slowing economic growth in HSBC’s major markets, an outbreak of a fast-spreading coronavirus, Britain’s protracted withdrawal from the European Union, and lower central bank interest rates.
While the London-headquartered bank has benefited from billions of dollars of investment in Asia over the last few years – mainly in China – sluggish performance in Europe and the United States has pulled down its returns.
The strategy update was presented by interim Chief Executive Noel Quinn. HSBC said the process for appointing a permanent CEO was ongoing and that it expected to make an appointment within six to 12 months as earlier outlined.
In announcing restructuring efforts, HSBC veteran Quinn is also auditioning for the permanent role of CEO, people with knowledge of the matter said earlier.
“This should create a leaner, simpler and more competitive group that is better positioned to deliver higher returns for investors,” Quinn said in a statement, referring to the restructuring initiatives.
Europe’s biggest bank by assets, which makes the bulk of its revenue in Asia, reported profit before tax of $13.35 billion for 2019 versus $19.89 billion a year earlier. That compared with the $20.03 billion average of brokerage estimates.
The profit drop was a result of $7.3 billion in write-offs linked to its global banking and markets and commercial banking business units in Europe, HSBC said in its earnings statement.
The bank said it planned to achieve a reduced adjusted cost base of $31 billion or below in 2022, underpinned by a new cost reduction plan of $4.5 billion, and return of tangible equity in the range of 10% to 12% in the same period.
In 2019, the bank reported a return on equity of 8.4%, down from 8.6% in 2018.
HSBC is in over 50 countries across Europe, North America, the Middle East and Asia – with the latter accounting for roughly half of its revenue and 90% of profit.
In the U.S., where the bank has underperformed for years, HSBC said it needed “to reshape the U.S. business in order to improve returns” and would close around a third of its 224 branches and target only international and wealthier clients.
As part of its efforts to simplify the group structure, HSBC said it would combine its retail banking and wealth management business unit with global private banking to create one of the world’s largest wealth management businesses.
The bank will also reduce its sales and research coverage in European cash equities with a focus on supporting equity capital market transactions, it said.
Reuters reported last month, citing people familiar with the matter, that HSBC was cutting around 100 roles in its cash equities business with the bulk of the layoffs falling on its continental European trading floors.
HSBC said the ongoing coronavirus epidemic had significantly impacted its staff and customers, and that the outbreak could in the long run reduce its revenue and cause bad loans to rise as supply chains are disrupted.
“Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains,” Quinn said.
The number of new coronavirus infections in mainland China fell below 2,000 on Tuesday for the first time since January, although global experts said it is still too early to say the outbreak is being contained.
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