Investors frowned on financial results from Hong Kong/London-listed yesterday, pulling down its shares after the banking group reported a sharp fall in profits for last year. The bank, as has been trailed in the media, also announced that it is slashing costs and changing its organisational structure to restore margins across the board.

In Hong Kong trading, shares in HSBC fell by 2.78 per cent. As of around 15:00 GMT on London's Stock Exchange, shares were down by about 5.3 per cent on the day.

The bank said that while results for 2019 had been “resilient” several parts were not performing acceptably. Changes mean that global private banking will now be part of a wealth and personal banking arm.

HSBC bank may over the next couple of years bring the total number of jobs to near to 200,000; there are currently 235,000. The restructuring changes will hit parts of HSBC’s European and US investment banking operations, although it is unclear at the time of going to press if private banking will be affected. When this news service asked HSBC, a spokersperson said: "We’re not providing a breakdown of the reduction plan."

The bank’s interim chief executive, Noel Quinn, will stay in the post as the search for a permanent CEO continues, it said.

These changes, such as big cuts to capital-intensive businesses, a simpler structure and shedding some operations, fit with a trend in past years of banks trying to pivot towards areas that do not soak up as much capital. HSBC’s changes, however, are some of the largest made by any major bank in recent years. A heavy restructuring announcement had been trailed in the press.

Thanks to its roots in Asia, HSBC has to some extent been able to profit from its links in the fast-growing region, while rival international banks have had to increase their presence on the region. Even so, HSBC's extensive global footprint has had to be adjusted, putting more focus on Asia and less on Europe, for example. 

HSBC said that it logged a reported profit attributable to ordinary shareholders of $6.0 billion in 2019, sliding by more than half (53 per cent) from a year ago, affected by a goodwill impairment of $7.3 billion. Reported profit before tax fell by 33 per cent year-on-year to $13.3 billion. Reported revenue rose by 4 per cent and reported operating costs rose by 22 per cent resulting from a goodwill impairment of $7.3 billion.

The goodwill impairment was mainly related to its global banking and markets business and the commercial banking operations in Europe. These setbacks reflected lower long-term economic growth rate assumptions, and additionally for GB&M, the planned reshaping of the business, the bank said.

“There is no guarantee that these measures will make HSBC, which has trailed its rivals for some time, the competitive bank it is craving to become in the short-term at least, particularly with the current weakness in Asia, its key market,” Adam Vetttese, an analyst at multi-asset investment platform eToro, said in a note.

Private banking
HSBC said that its global private banking arm drew in $23 billion of net new money in 2019 and increased adjusted revenue by 5 per cent. For 2019, private banking’s adjusted pre-tax profit was $402 million, up from $339 million in 2018. The cost/income ratio was 77.1 per cent, down from 81.1 per cent.   

“The group’s 2019 performance was resilient; however, parts of our business are 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. We have already begun to implement this plan, which my management team and I are committed to executing at pace,” Quinn said.

The lender said that it is targeting a cut of more than $100 billion in risk-weighted assets by the end of 2022, with those assets to be reinvested, leading in broadly flat RWAs between 2019 and 2022; a cutback in its adjusted cost base of $31 billion or below in 2022, aided by a new cost cut plan of $4.5 billion. As part of the move, HSBC wants to suspend share buybacks for this year and 2021 because of the high level of restructuring over the next two years.

Divisional changes
HSBC said that it will simplify its structure, including consolidating retail banking and wealth management and global private banking into a new wealth and personal banking arm; folding the back and middle office to a single model for part of its business, and cutting its geographic reports from seven to four at the group executive level.

Europe, US business cutbacks
At the European business, excluding HSBC UK, the lender said it wants to cut risk-weighted assets by about 35 per cent by the end of 2022. “We intend to focus our UK investment banking activities on supporting UK mid-market clients and international corporate clients through our London hub. We also intend to reduce our sales and trading and equity research in Europe and transition our structured products capabilities from the UK to Asia,” it said. 

At the US business, HSBC said that it wants to reposition it as an international client-focused corporate bank, with a targeted retail offering. It plans to consolidate select fixed income activities with those in London to maximise global scale, and reduce the RWAs associated with its US global markets business by around 45 per cent. It also intends to cut operating costs by 10 per cent to 15 per cent.

Looking ahead, Quinn said: “Since the start of January, the coronavirus outbreak has created significant disruption for our staff, suppliers and customers, particularly in mainland China and Hong Kong. We understand the difficulties this poses and have put measures in place to support them through this challenging time.”

“Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China. 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 added.