HSBC, Europe's largest bank, will restructure its global operations to cuts costs and merge businesses, as the lender said its pre-tax full-year profit for 2019 slumped 33 per cent due to $7.3 billion (Dh26.8bn) in write-offs.
The bank‘s reported profit before tax dropped to $13.3bn for the 2019 financial year, dragged down by goodwill impairment charges that include $4bn related to its global banking and markets business and $2.5bn in commercial banking in Europe.
HSBC plans to cut costs by $4.5bn in a bid to boost profit growth amid a weakening world economy affected by trade tensions, a slowdown in the two largest economies and the reverberations of the coronavirus outbreak.
HSBC, which earns the bulk of its revenue from Asian markets, is cutting back on operations in Europe and the US and plans to boost its investment banking business in Asia and the Middle East. The lender has reshuffled its top management team. Its interim chief executive, Noel Quinn, however, remains in place as the bank looks for a permanent appointment within the next six to 12 months, it said on Tuesday.
"The group's 2019 performance was resilient, however, parts of our business are not delivering acceptable returns," Mr Quinn said on Tuesday. "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."
HSBC, he said, has started implementing the plan. The bank's shares fell 3.2 per cent, their biggest drop in six months in Hong Kong following the announcement.
"Yet another round of massive restructuring ... did not charm investors at the first sight," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
The lender’s adjusted profit before tax climbed 5 per cent to $22.2bn, reflecting good revenue growth in global private banking and retail banking and its wealth management business. Adjusted revenue for the reporting period rose 5.9 per cent to $55.4bn.
Adjusted revenue in Asia, where the bank has invested heavily over the past few years, climbed 7 per cent to $30.5bn and adjusted profit before tax rose 6 per cent to $18.6bn. Despite the ongoing political turmoil, Hong Kong remained resilient, with adjusted pre-tax profit rising 5 per cent to $12.1bn, the lender said.
The bank, however warned the coronavirus outbreak and continued political upheaval that has affected economic activity in Hong Kong, may impact profitability this year. HSBC suspended share buy-back plans for 2020 and 2021, given the high level of restructure expected over the next two years.
While the bank has reaped the benefits from its investments in Asia, its operations in the US and Europe have proved to be a drag on profit. There have been mounting questions regarding the level of returns for shareholders despite the bank's presence in some of the world’s fastest growing markets.
The restructure plan is central to HSBC's efforts to improve "the group’s returns by 2022 to allow us to meet our growth ambition and sustain our current dividend policy”, the bank said. “We intend to reduce capital and costs in our underperforming businesses to enable continued investment in businesses with stronger returns and growth prospects … including a reduction in group and central costs.”
The bank plans to achieve a reduced adjusted cost base of $31bn or below in 2022, underpinned by its new cost reduction plan of $4.5bn. The planned operational cutbacks extend into the lender’s US and European investment banking businesses. HSBC will scale back its fixed-income business and assets linked to trading operations in the US will be nearly halved. It is also reducing its branch network by 30 per cent in the country.
To simplify its business structure, HSBC has combined its global retail banking and wealth management operations with its global private banking business. It has appointed Charlie Nunn to head the new platform. Antonio Simoes has stepped down as chief executive of global private banking. Barry O'Byrne is taking over HSBC's global commercial banking operations as chief executive.