HSBC (NYSE: HSBC) presented a new business plan that includes cutting 35,000 jobs and more than $100bn in assets over the next three years. It currently employs 235,000 staff. The new business plan aims to restore profits, after a fall in annual earnings of a third.
The lender’s interim chief executive Noel Quinn said “Our previous plans are no longer sufficient to improve performance of continental Europe, US, and the UK businesses. Below are three reasons for the massive job cuts and radical restructure at the global bank.
Focusing On High Margin Businesses
Europe’s biggest bank by assets, which makes the bulk of its revenue in Asia, reported 2019 profit before tax of $13.4bn, a 33% hit by one-time write-offs linked to its investment banking and commercial banking businesses in Europe.
It said the fall in profits was mainly due to $7.3bn in write-offs related to its investment and commercial banking operations in Europe. The bank currently operates in more than 50 countries across North America, Europe, the Middle East and Asia.
The bank said it planned to achieve a reduced adjusted cost base of $31bn or below in 2022, underpinned by a new cost reduction plan of $4.5bn , and return of tangible equity in the range of 10% to 12% in the same period. HSBC’s Quinn said: “Around 30% of our capital is currently allocated to businesses that are delivering returns below their cost of equity.”
Moving to Stable Outlook
Moody’s Investors Service has recently declined its outlook of HSBC from stable to negative. The downgrade reflects the rating agency’s concerns over the significant changes in the business model. The agency also pointed out risks related to its US business.
The credit-rating company predicts lower than expected profitability in 2020 and 2021 due to business and regulatory challenges. “The asset quality and profitability in Asia and a more difficult operating environment in Hong Kong could decline its profitability compared to estimates,” said Alessandro Roccati, senior vice president at Moody’s.
Enhancing Cash Returns for Investors
The company suspended its share buyback program for the next two years and plans to maintain the dividends at the current level due to planned remodelling. The HSBC boss says they are making these restructuring moves to improve investor’s returns over the long-term. “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.”