HSBC 2019 pre-tax profits drop by a third to US$13.3 bil

HONG KONG: HSBC on Tuesday announced further cost-cutting and restructuring pains after profits slid by a third last year and as its interim chief warned the global banking giant was still “not delivering acceptable returns”.

The Asia-focused lender has been trying to lower costs as it faces a multitude of uncertainties caused by the grinding US-China trade war, Britain’s departure from the European Union and now the deadly new coronavirus in China.

While its Asia business has done well in recent years – fuelled primarily by China – its businesses in Europe and the United States have disappointed.

Noel Quinn, who took over as acting CEO after the shock ouster in August of John Flint, has been tasked with overhauling the sprawling international bank, which spans more than 50 countries but makes the vast majority of its profit in Asia.

On Tuesday, HSBC said a 33% drop in annual profits last year compared to the US$19.89 billion it made in 2018 was largely down to a US$7.3 billion one time write-off related to its investment and commercial banking businesses in Europe.

It also reported a loss before tax of US$3.9 billion in the fourth quarter of 2019.

The bank announced a US$4.5 billion cost reduction proposal and gave fresh details on plans to overhaul its more underperforming areas, particularly its businesses in the United States and Europe.

“The Group’s 2019 performance was resilient, however, parts of our business are not delivering acceptable returns,” Quinn said.

HSBC’s Hong Kong-listed shares fell 2.2%, outstripping losses on the Hang Seng.

Cost-cutting

Last year HSBC announced plans to axe some 4,700 jobs, primarily outside of its more profitable businesses within the Greater China region.

Tuesday’s statement gave few concrete details but further job losses look likely in an organisation that employs some 240,000 people globally.

“We intend to reduce capital and costs in our underperforming businesses to enable continued investment in businesses with stronger returns and growth prospects,” the bank said.

“We also plan to simplify our complex organisational structure, including a reduction in Group and central costs.”

In the US, the bank said it planned to reduce its branch network by around 30%, consolidate back and middle office activities and lower operating expenses by 10-15%.

For its non-UK Europe sector, the bank said it would “reduce our sales and trading and equity research in Europe and transition our structured products capabilities from the UK to Asia.”

Overall, the bank said it hoped to achieve a reduced adjusted cost base of US$31 billion or below in 2022.

Sources have previously told AFP that HSBC is looking to sell part or all of its retail banking sector business in France where it employs 8,500 people.

However, there was no update in the earnings report.

The bright spot for HSBC remains Asia which has accounted for half of its revenue and 90% of the group’s profit in recent years.

Adjusted profit before tax in Asia last year was up 6% to US$18.6 billion.

Even in Hong Kong, which was battered by months of seething pro-democracy protests last year, the banking giant posted a 5% increase in adjusted pre-tax profits to US$12.1 billion.

But the economic fallout of the new coronavirus, which has killed nearly 1,900 people in China and spread to dozens of countries, is likely to create fresh headaches, especially in Asia.

“As a result of the impact of the coronavirus outbreak, we have lowered our expectations for growth in the Asian economy in 2020,” HSBC said.