HSBC has said it plans to shed about 35,000 jobs as part of a radical downsizing of its operations in Europe and the US, as it warned of the threat to its business from social unrest in Hong Kong and the coronavirus outbreak.
The London-based bank said it aimed to cut annual costs by $4.5bn and shed $100bn of assets adjusted for risk by the end of 2022 as it attempts its most drastic overhaul since the financial crisis in a bid to kick-start its stuttering business.
The bank did not publish a headcount reduction target but in an interview with the Financial Times, Noel Quinn, interim chief executive, said he expected the number of full-time employees to fall from about 235,000 to 200,000 within three years.
Mr Quinn said this would be achieved partly through natural attrition as opposed to outright job cuts, and that redundancies would be “managed in a sensible and sensitive manner”.
Ewen Stevenson, chief financial officer, said the headcount reductions would fall into three “buckets”, including the downsizing of the lender’s business in Europe and the US and a broader cost-cutting plan designed to reduce complexity. The FT has previously reported that the cost-cutting element threatens 10,000 jobs.
“Parts of our business are not delivering acceptable returns. We are therefore outlining a revised plan to increase returns for investors,” Mr Quinn said on Tuesday. “We have already begun to implement this plan, which my management team and I are committed to executing at pace.”
HSBC said it expected the overhaul to lead to about $6bn in restructuring costs and $1.2bn of costs related to disposals, the majority of which would fall this year and next.
Investors reacted negatively to the strategic overhaul, sending shares in HSBC down around 6 per cent in early trading in London.
One investor said shareholders were disappointed that the planned balance sheet reduction would not free up excess capital to fund share buybacks, with HSBC apparently preferring to use the capacity to fuel growth in Asia and other emerging markets.
HSBC said it would decrease the size of its investment bank by reducing the amount of assets adjusted for risk by about 35 per cent in Europe and 45 per cent in the US. It added that it would redeploy the capital tied up in these businesses in higher-growth areas.
HSBC also said it would shrink its sales and trading and equity research operations in Europe and move its structured products division from London to Asia.
In the US, where the bank has generated subpar returns for years, HSBC said it would “reposition” itself by slashing the size of its retail branch network by almost one-third, moving fixed-income trading to London and reducing operating costs by 10 to 15 per cent.
The bank said it would make significant changes to the structure of the group by merging the “back and middle office” sections of its investment bank and commercial bank, stopping short of a full-scale merger of the two divisions.
It also unveiled plans to merge its standalone global private bank, which provides services to rich clients, into a beefed-up retail banking unit.
António Simões, who heads the private bank, is leaving HSBC as a result of the overhaul, making him the highest-profile casualty of the restructuring so far. He was once tipped as a potential future chief executive of the group.
Mr Simões had been in contention to lead the commercial bank, but that position has now been filled permanently by Barry O’Byrne, who had held the post on an interim basis since August.
In addition, the bank will suspend share buybacks “given the high level of restructuring”, although it said it would maintain its dividend and keep its core equity tier 1 ratio — a key measure of balance sheet strength — at between 14 and 15 per cent.
HSBC said the changes would enable it to generate a return on tangible equity — its headline measure of profitability — of between 10 and 12 per cent by 2022, compared with the 8.4 per cent it reported for 2019.
The bank unveiled the overhaul as it reported a pre-tax loss of $3.9bn for the fourth quarter, after taking a $7.3bn writedown on the value of its investment and commercial banks in Europe, which it blamed on “lower long-term economic growth rate assumptions”.
Adjusted pre-tax profit for the fourth quarter was up 29 per cent to $4.3bn, ahead of consensus estimates of $3.9bn.
