HSBC Plans to Cut 35,000 Jobs, $100 Billion of Assets -- 2nd Update

By Simon Clark and Margot Patrick 

LONDON -- HSBC Holdings PLC said it would cut 35,000 jobs and $100 billion in assets in the next three years as it scales back operations in the U.S. and mainland Europe, as well as its investment bank.

Europe's biggest lender by assets plans to invest more in its fast-growing Asian and Middle Eastern operations to boost profit. HSBC operates in more than 50 countries but makes half of its revenue in Asia.

The bank said Tuesday that net profit fell 53% to $5.97 billion last year, hit by a goodwill impairment of $7.3 billion.

HSBC's London-listed shares were down 6% Tuesday as the bank said it would suspend share buybacks for two years, and analysts said the restructuring plans came with significant risks.

The benefits of the restructuring will be evident largely from 2023 onward, said Citigroup analyst Ronit Ghose, who recommended that investors sell HSBC shares.

The 155-year-old lender is reorganizing its business as political challenges destabilize its main markets. It is dealing with uncertainty surrounding the U.K.'s departure from the European Union, antigovernment protests in Hong Kong and trade tensions between the U.S. and China.

HSBC has reduced its expectations for Asian economic growth in 2020 as a result of the coronavirus outbreak, Chairman Mark Tucker said. The bank said loan losses could rise and revenue could fall if the outbreak is prolonged.

The restructuring is being led by Chief Executive Noel Quinn, who replaced John Flint in August on an interim basis. Mr. Quinn is vying for the permanent role of CEO, which the bank said would be decided this year.

HSBC will exit businesses "where necessary," Mr. Quinn said.

"Around 30% of our capital is currently allocated to businesses that are delivering returns below their cost of equity, largely in global banking and markets in Europe and the U.S.," he said.

Chief Financial Officer Ewen Stevenson told journalists there would be "meaningful job cuts" in HSBC's investment bank and headquarters in London.

The bank, which employs 235,000 people, expects to incur around $7.2 billion of costs related to the restructuring in the next few years.

The strategy pulls HSBC closer to its Asian roots. The bank was founded in 1865 in Hong Kong and Shanghai to finance trade with Europe. London will remain a hub for the investment bank, but increasingly will play a supporting role to operations in Hong Kong and Singapore.

"We are going to move more of our investment banking and global markets resources into Asia -- more of our sector specialists, more of our product specialists -- we are going to look to base in Hong Kong and the rest of Asia," Mr. Quinn said in an interview. "We will still have a presence in London but it's fair to say the mix is going to change over the next two to three years."

Turbulence at HSBC is sapping morale within the bank, with 58% of employees saying they saw "the positive impact of our strategy" in 2019, down from 67% in 2018, according to a poll conducted by the lender.

Globally, the lender will combine its retail-banking business, wealth-management unit and private bank into one entity to cut costs. It will shed $100 billion of its risk-weighted assets, which totaled $843.4 billion at the end of last year.

António Simões, the CEO of HSBC's private bank, is set to leave later this year.

HSBC's retail and commercial bank serving U.K. customers remains "very important," Mr. Quinn said, adding that he expects it to become increasingly tied to the rest of the world as the country leaves the EU.

In continental Europe, where HSBC's French business is up for sale, the bank plans to reduce its risk-weighted assets by 35% by the end of 2022.

In its long-struggling U.S. arm, Mr. Quinn said HSBC would cut assets in investment banking and markets by almost half, and shut around 70 of its 229 branches. The retail bank will target "internationally affluent" individuals across the country, Mr. Quinn said.

"It will require a larger reduction in our branch network on the east coast," Mr. Quinn said. "We are going to be opening up more branches in the international markets that are relevant to HSBC, principally on the west coast of America."

As of September, HSBC was the U.S.'s 14th-largest commercial bank, according to Federal Reserve data, with around $181 billion in assets. Mr. Quinn said he had considered putting the unit up for sale but decided against it because the U.S. is a crucial part of the bank's global network.

In mainland China, HSBC has for years positioned itself to take advantage of growing economic ties between the most populous nation and the wider world, but that integration is now challenged by the trade conflict with the U.S.

"The agreement of a phase-one trade deal between China and the U.S. is a positive step, but we remain cautious about the prospects for a wider-ranging agreement given disagreements that still exist, particularly over technology," Mr. Tucker said.

Mr. Quinn, formerly the global commercial-banking head at HSBC, was elevated after Mr. Tucker decided new leadership was needed, ending Mr. Flint's three-decade career at the bank with limited public explanation.

Mr. Tucker brushed aside questions Tuesday about whether it made sense for Mr. Quinn to announce a restructuring when he may not see the changes through. He said the restructuring and the selection of the new CEO were separate processes running in parallel.

Write to Simon Clark at [e-mail] and Margot Patrick at [e-mail]

(END) Dow Jones Newswires

February 18, 2020 11:35 ET (16:35 GMT)

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