HSBC to cut 35,000 jobs after profit drops by one-third

The global bank said it would cut $4.5bn in costs, slash its investment banking operations and close almost one in three US branches by 2022 in a revamp designed to increase returns and give interim CEO Noel Quinn a shot at the permanent job.

"The totality of this program is that our headcount is likely to go from 235,000 to closer to 200,000 over the next three years," Quinn told Reuters. The cuts, amounting to 15% of the bank's workforce, are far higher than the 10,000 expected by analysts.

The Asia-focused lender also warned the coronavirus could hit revenue and trigger credit losses as the disease disrupts supply chains.

Pretax profit for the year to the end of December fell 33% to $13.3bn as revenue rose to $56.1bn from $53.8bn. HSBC's $7.3bn goodwill writedown included $4bn at its investment bank.

The FTSE 100 bank said it would cut $100bn of risk-weighted assets by the end of 2022 and reduce costs by $4.5bn. It targeted a return on tangible equity of 10-12% in 2022. The dividend will be sustained but there will be no share buybacks in 2020 or 2021.

Quinn said: "The group's 2019 performance was resilient. However, parts of our business are not delivering acceptable returns. 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. We have already begun to implement this plan."

HSBC is looking for a new CEO after the sudden departure of John Flint in August after less than 18 months in charge. Quinn is staking his claim to the job by driving through a big restructuring of the global bank's operations, including the costly investment banking business.

The bank said it would appoint a CEO within six to 12 months of Flint's departure as planned. It said Quinn's restructuring would cost $6bn in restructuring charges and $1.2bn on asset disposals.

Despite Quinn's tough talk on costs, HSBC shares fell 5.2% to 560.3p at 0848 GMT as investors showed frustration with the bank's decision to suspend returning cash to shareholders.

Shore Capital said the strategy update was unsatisfactory because the planned reduction in assets would largely be consumed by cost, reinvestment into retail banking and wealth management and a higher capital target.

"We think the strategy update will come as a disappointment to investors given the lack of capital that is being freed up for shareholders," Shore analyst Gary Greenwood said.

HSBC said it would reduce risk-weighted assets in Europe by 35% at the end of 2022 to focus on UK midmarket companies and international corporate clients. The bank will reduce capital used at its European rates business and quit capital-intensive products including G10 market-making in the UK.

There will be cuts in sales, trading and equity research and structured products will move from the UK to Asia. In the US, the bank will cut risk-weighted assets in global banking and markets by 45% and operating costs by up to 15%. About 30% of its branches will close.

Quinn's plan is HSBC's latest switch in its investment banking strategy over the past two decades. It has made a number of attempts at hiring big names to take on Wall Street banks before retrenching to its roots in Asia and commercial banking.

HSBC, whose biggest business is in Hong Kong, said the global economic environment remained uncertain and that it had reduced its outlook for Asian economic growth in light of the coronavirus outbreak. Global growth will stabilise in 2020 but at a slightly lower rate than in recent years, the bank said.

"Depending on how the [coronavirus] situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China," Quinn said. "Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains."