HSBC has put in place a drastic plan to save $4.5bn a year and dispence with $100bn of underperforming assets by the end of 2022.
The London-headquartered international giant, which makes 90% of its profits and 50% of its revenue in Asia, released its full-year results for 2019 showing a 33% fall in profits YoY. The bank posted a net profit of $5.97bn, down from $12.61bn in 2018 but still a far cry from the $1.6bn posted for 2016. The bank attributed much of the loss to its investment banking arm and overseas operations in the US and Europe.
HSBC confirmed it will be reducing its underperforming investment bank and restructuring its US and European businesses. Around 15% of the bank's total workforce worldwide will be laid off, with 35,000 jobs cut over three years.
In one sense, they are doing the things that were obvious and had been called out by many, so it’s good.”
The bank is seeking to reduce assets in Europe by 35% and in the US by 45%. Fixed-income trading will be centralised in London, and worldwide operating costs reduced by 10-15%.
HSBC Private Bank, the HNW arm of HSBC around the world, is expected to be merged with its retail banking and wealth management arm, and will operate under a new name. António Simões is stepping down as head of the private bank.
Noel Quinn, HSBC's interim CEO, told Reuters: "The totality of this program is that our headcount is likely to go from 235,000 to closer to 200,000 over the next three years."
On Tuesday Quinn explained: "Parts of our business are not delivering acceptable returns. We are therefore outlining a revised plan to increase returns for investors. We have already begun to implement this plan, which my management team and I are committed to executing at pace."
He emphasised the majority of job losses would occur through natural attrition and employees reaching the end of their contracts.
Hugh Young, managing director at Aberdeen Asset Management Asia (and a big investor in HSBC China), said: "In one sense, they are doing the things that were obvious and had been called out by many, so it's good."
HSBC said the reforms would mean its return on tangible equity (a key gauge of profitability) would rise from 8.4% in 2019 to around 12% by 2022.
In a silver lining for the bank pre-tax profit in 4Q19 rose by 29%, to $4.3bn.
HSBC made no further announcement on the future of its French or Turkish units, both of which are being considered for sale.