HSBC unveiled a further strategic shift to Asia and retreat from the west, pledging to invest $6bn to expand in Hong Kong, China and Singapore, while confirming it would sell its US retail arm and soon exit its French consumer bank.
Chief executive Noel Quinn also announced he would symbolically relocate some of his top management team to Hong Kong, saying “we will move the heart of the business to Asia, including leadership”.
The changes came as the bank on Tuesday reported a 50 per cent plunge in fourth-quarter profit. While stark, that decline was less than projected by analysts as coronavirus-related loan-loss provisions tailed off, allowing the bank to restart paying a modest dividend.
HSBC also said it would cut an extra $1bn in annual costs and prioritise expansion in the fee-generating wealth management business.
Quinn said the bank was looking to slash 40 per cent from its global head-office costs over time, after a year in which the pandemic has upended working practices.
“We have got to face reality, the world has changed,” he said in an interview. “Our travel and premises costs will be a lot less than they were pre-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 headquarters in Canary Wharf in London — where it has a lease until 2027 — or its historic founding outpost in Hong Kong, but rather more peripheral properties in those cities.
Quinn and chairman Mark Tucker are accelerating a radical overhaul of the 156-year-old lender to galvanise performance and win back sceptical investors, which have sold out of the stock in recent years.
“In 2020, we experienced economic and social upheaval on a scale unseen in living memory,” said Tucker. “The external environment was being reshaped by a range of factors — including the impact of trade tensions between the US and China, Brexit, low interest rates and rapid technological development.”
The announcement strengthens a strategy set this time last year, which will shift $100bn of capital to Asia, cut 35,000 jobs in Europe and the US, and boost plans to become a market leader in wealth management in Asia.
Greg Guyett, co-head of global banking and markets, Nuno Matos, chief executive of wealth and personal banking, and Barry O’Byrne, chief executive of commercial banking, will move from London to Hong Kong. Relocating the trio will mean business divisions that account for almost all of HSBC’s global revenue will be run out of the city.
The decision has symbolic importance considering HSBC’s precarious position, caught in the middle of escalating geopolitical tensions between the west and China as they face off over the future of Hong Kong and global trade.
The bank has no plans to move any top managers to mainland China. Quinn said: “Myself and [chief financial officer] Ewen [Stevenson] . . . will definitely stay based here in London,” and he ruled out another review of moving the lender’s headquarters.
HSBC also confirmed for the first time that it was exploring a sale of its 150-branch US retail network — retaining investment banking, corporate and wealth management services in the country — and was close to exiting its 200-branch French consumer bank.
“We don’t believe we have a strong competitive position in the [US] retail business [and] Covid and low interest rates have made the challenge even greater,” said Quinn. “On France, we are in the final stages at the negotiations of a potential sale.”
HSBC’s strategic announcement was overall short on detail. Joseph Dickerson, an analyst at Jefferies, said “the updated 2022 strategy plan looks a bit dull” and investors were “searching for the narrative”.
“The strategy update . . . offers limited new surprises,” said Citigroup analyst Ronit Ghose. “Double-digit returns will remain challenging in the coming years until rates rise.”
Quarterly adjusted pre-tax profits slid 50 per cent year on year to $2.2bn, $400m more than analysts had expected. Impairment charges for bad loans climbed $1.2bn in the final three months of 2020, increasing HSBC’s cumulative reserves to $8.8bn for the year. That helped drive annual pre-tax profit down 45 per cent to $12.1bn.
The bank will restart paying a dividend of $0.15 a share after a Bank of England ban on shareholder payouts was partially lifted late last year. However, reflecting the uncertain outlook, HSBC lowered its profitability target from 10 to 12 per cent return on equity to 10 per cent “over the medium term”.
HSBC shares jumped by as much as 7 per cent in Hong Kong on Tuesday. The stock has risen 18 per cent this year, but remains down by more than a fifth from its pre-pandemic levels in early 2020.