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HSBC commences overhaul as profit shrinks

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A reported 35,000 jobs are to be shed at HSBC in the next three years, as part of a group-wide restructuring, after the company’s profit plummeted in 2019.

HSBC recorded a reported profit attributable to ordinary shareholders of US$6 billion ($9 billion), more than half (53 per cent), of what it had been a year before. The final quarter of the year had produced a loss of US$3.9 billion.

Reported profit before tax was down by 33 per cent to US$13.3 billion.

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Adjusted revenue had increased by 5.9 per cent to US$55.4 billion, while reported revenue was up 4 per cent.

Reported operating expenses had jumped by 22 per cent, due to a goodwill impairment of US$7.3 billion, primarily holding $4 billion related to the global banking and markets segment and US$2.5 billion in commercial banking in Europe.

The bank has already embarked on its new transformation plan, after it started on its previous changes. HSBC will be taking an axe to its “complex” organisational structure, looking to reduce group and central costs as well as improve the capital efficiency of the group. 

The group is also aiming to reduce capital and costs in its underperforming businesses to enable continued investments in its stronger performers, namely the retail banking and wealth management division as well as its businesses in Asia. 

An executive was said to reveal the bank had plans for cutting down on staff globally during an earnings call, but it remains to be seen if employees at HSBC’s Australian arm will see the impacts. 

A memo sent to all staff in the Asia Pacific following the results stated the net impact on headcount in the region will be low. HSBC has also indicated that it wants to diversify within the region outside Hong Kong and China, aiming to grow in Australia, India, Malaysia, and Singapore.

The Australian business also saw US$3 billion in mortgage growth over the past year, the second strongest market for HSBC after Hong Kong.

The group currently has around 235,000 staff - over the medium term, the number is expected to edge closer to 200,000 but around 25,000 employees are said to choose to leave the bank every year. 

Noel Quinn, group chief executive said the HSBC’s performance had been resilient, but parts of the business were not delivering acceptable returns. 

“We are therefore outlining a revised plan to increase returns for investors, create the capacity for future investment and build a platform for sustainable growth,” Mr Quinn said.

“We have already begun to implement this plan, which my management team and I are committed to executing at pace.”

HSBC expects to incur recurring costs of around US$6 billion and asset disposal costs of around US$1.2 billion during the period, leading up to 2022 – with the majority of restructuring costs to come in 2020 and 2021.

Across segments, the retail banking and wealth management business will be merged with global private banking to form a new division, wealth and personal banking. 

The back and middle office will be consolidated to a single model for the commercial banking and global banking segments. 

In the US, it wants to cut down on its branch network by around 30 per cent, with a focus on digital retail banking. 

HSBC intends to reduce the risk-weighted assets associated with its US global markets business by around 45 per cent, to be reinvested into the commercial banking and retail banking and wealth management segments.

The European business will see a reduction in sales and trading and equity research, while HSBC transitions its structured products capabilities from the UK to Asia.

The group is still yet to find a permanent replacement for its former global chief executive John Flint, after he resigned in August by “mutual agreement”

Its new Australian boss, Kaber Mclean, is set to start from the beginning of March.

 

HSBC commences overhaul as profit shrinks
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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