HSBC Shifts ‘Heart of Business’ to Asia in Latest Strategy Overhaul
HSBC unveiled a new strategic shift to Asia and a withdrawal from the West, pledging to invest $ 6 billion to expand in Hong Kong, China and Singapore, while confirming it will sell its branch retail in the United States and would soon be leaving its French consumer bank.
Managing Director Noel Quinn also announced that he will symbolically move part of his management team to Hong Kong, saying “we will move the heart of the business to Asia, including the leadership.”
The changes came as the bank on Tuesday announced a 50% drop in fourth-quarter profits. While sharp, the drop was smaller than analysts expected, as provisions for coronavirus-related loan losses declined, allowing the bank to resume paying a modest dividend.
HSBC also announced that it will reduce an additional $ 1 billion in annual costs and prioritize the expansion of the commission-generating wealth management business, in which it will invest $ 3.5 billion and hire more than 5,000 advisers.
Quinn said the bank is looking to cut costs at its global headquarters by 40% over time, after a year in which the pandemic has changed working practices.
“We have to face the reality, the world has changed,” he said in an interview. “Our travel and accommodation costs will be much lower than they were before Covid,” adding that HSBC would “adopt a more flexible working environment” and abandon some of its more expensive properties in its main hubs.
The cuts will not affect HSBC’s Canary Wharf headquarters in London – where it has a lease until 2027 – or its historic founding outpost in Hong Kong, but rather more outlying properties in those cities.
Quinn and Chairman Mark Tucker are accelerating a sweeping overhaul of the 156-year-old lender to galvanize performance and win back skeptical investors, who have sold their shares in recent years.
“In 2020, we experienced economic and social upheaval on a scale never seen in living memory,” said Tucker. “The external environment was being reshaped by a series of factors, including the impact of trade tensions between the United States and China, Brexit, low interest rates and rapid technological development.”
The announcement reinforces a strategy set at the same time last year, which will move $ 100 billion in capital to Asia, cut 35,000 jobs in Europe and the United States and boost plans to become a market leader of wealth management in Asia.
Greg Guyett, Co-Head of World Bank and Markets, Nuno Matos, Managing Director of Wealth Management and Personal Banking Services, and Barry O’Byrne, Managing Director of Commercial Banking, will be leaving London for Hong Kong. The relocation of the trio will mean that the business divisions that account for almost all of HSBC’s global revenue will be run out of town.
The move has symbolic significance given HSBC’s precarious position, taken amid escalating geopolitical tensions between the West and China as they clash over the future of Hong Kong and global trade .
The bank has no plans to move senior executives to mainland China. Quinn said: “myself and [chief financial officer] Ewen[Stevenson]. . . will definitely remain based here in London, ”and he ruled out another review of the lender’s head office move.
The bank also revealed that Laura Cha, an influential businesswoman in Hong Kong and chairman of Hong Kong Exchanges and Clearing, the company that manages the city’s stock exchange, will step down after nine years.
In addition, HSBC has confirmed for the first time that it is considering the sale of its US retail network of 150 branches – keeping investment banking, corporate and wealth management services in the country – and was on the verge of withdrawing from its French consumer bank of 200 branches.
“We do not believe we have a strong competitive position in the [US] retail business [and] Covid and low interest rates have made the challenge even greater, ”Quinn said. “In France, we are in the final stages of negotiations for a possible sale.”
Overall, HSBC’s strategic announcement was sparse. Joseph Dickerson, analyst at Jefferies, said “the updated strategic plan for 2022 looks a bit boring” and investors “are looking for the narrative.”
“Updating the strategy. . . offers few new surprises, ”said Ronit Ghose, analyst at Citigroup. “Double-digit yields will remain difficult for years to come until rates rise.”
Quarterly adjusted pre-tax profits fell 50% year-on-year to $ 2.2 billion, $ 400 million more than analysts expected. Bad debt impairment charges increased by $ 1.2 billion in the last three months of 2020, bringing HSBC’s accumulated reserves to $ 8.8 billion for the year. This helped push pre-tax annual profit down 45% to $ 12.1 billion.
The bank will resume paying a dividend of $ 0.15 per share after a Bank of England ban on payments to shareholders was partially lifted late last year. However, reflecting the uncertain outlook, HSBC has lowered its profitability target from 10% to 12% return on equity to 10% “over the medium term”.
HSBC shares jumped as much as 7% in Hong Kong initially on Tuesday, but squeezed those gains and fell 1% in London. The stock has risen 14% this year, but remains down more than a fifth from its pre-pandemic levels in early 2020.
Letter in response to this article:
Fears of an exodus from Hong Kong are exaggerated / By Peter Beckingham, Hong Kong