HSBC embarks on massive overhaul

HONG KONG/LONDON: HSBC Holdings Plc yesterday dropped its 2020 profit target, reported a sharp fall in earnings and warned of a costly restructuring, as interim chief executive Noel Quinn seeks to tackle its problems head-on in his bid for the full-time role.

Quinn branded the lender’s sluggish performance in Europe and the United States as “not acceptable”, but said investors might have to wait until early next year to hear his full plans to “remodel” Europe’s biggest bank by assets.

The latest HSBC restructuring comes in a gloomy business environment, including an escalating SinoUS trade war, Britain’s protracted withdrawal from the European Union, an easing monetary policy cycle, and unrest in Hong Kong.

HSBC reported pre-tax profit of US$4.8 billion for the third quarter, compared with the $5.3 billion average of analysts’ forecasts.

“Overall a poor set of results,” said analyst Edward Firth at broker KBW. “But the good news is that this performance looks set to finally goad the management into taking some of the actions to address underperforming businesses that we have been awaiting.”

The earnings update is HSBC’s first under Quinn, and is widely seen by shareholders and insiders as a report card on his audition for the CEO role full-time.

“Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth,” Quinn said of the bank’s US and

European operations.

As a result of a “more challenging” revenue outlook compared with the first half of the year, HSBC said it did not expect to meet its return on tangible equity (RoTE) target of 11% in 2020.

A veteran of the bank since 1987, Quinn, 57, has made it clear he is keen to secure the permanent appointment of CEO from chairman Mark Tucker, who said in August that the search to replace the ousted John Flint would take six to 12 months.

One of Quinn’s biggest headaches is HSBC’s US retail banking business, which has struggled for years against much bigger domestic rivals and where it booked a loss of $189 million in the first nine months of the year.

Some analysts have said the bank could look to shut down the business, but Quinn dismissed the notion.

“You should not read into anything I’ve said that we are looking to exit the retail bank in the US,” he said yesterday, without ruling out scaling it back.

HSBC’s investment bank is another sore spot, with profits down 22% in the first nine months of the year.

Its trading businesses in particular had a tougher third quarter than US peers, with revenue down 22% in fixed income, currencies and commodities, and down 26% in equities.

Quinn said the bank, which generates the bulk of its revenue and profit in Asia, would shift capital away from low-return businesses and further cut costs by simplifying HSBC’s notoriously complicated management structure.

“There is scope throughout the bank to clarify and simplify roles, and to reduce duplication,” he told Reuters.