Amid falling profits and the chaos caused by the coronavirus, HSBC
"This represents one of the deepest restructuring and simplification programs in the bank's history," interim CEO Noel Quinn said Tuesday.
HSBC will be refocusing on Asian markets because the investments markets in Europe and the U.S. "are not delivering acceptable returns", according to Quinn. The job reduction is being framed as a simplification meant to allow for "greater pace, greater agility and a less bureaucratic environment." The bank plans to close 30% of their U.S. branches but they will be opening new branches on the west coast to serve the large Asian population there.
"We expect the reduction [in assets] to be fully offset by growth opportunities we see elsewhere," CFO Ewan Stevenson said on a call with reporters.
This announcement comes at an important time for the seventh-largest bank in the world. HSBC first warned this change was coming in October of last year after profits fell by 18%. At the time, the bank blamed "challenging market conditions" for the fall in profits for its European and American branches.
HSBC's CEO John Flint stepped down after less than two years in his position just months before the October warning. Flint was replaced by current interim CEO Noel Quinn in August, and now analysts are concerned about such a major restructuring being spearheaded by an interim CEO.
"He has already started to oversee meaningful change and is about to unveil the most significant strategic reorganization" since 2011, Investec Securities banks analyst Ian Gordon told CNN Business
HSBC chairman Mark Tucker has tried to comfort investors over the search for a permanent CEO. He explained that the bank is following a "very thorough and rigorous process" to search for a new CEO and that a permanent replacement would be announced by August, 2020.
The decision to undergo this massive restructuring was announced during HSBC annual result disclosure to investors. Profits fell from nearly $20 billion in 2018 to $13.3 billion in 2019, a reduction of nearly a third.
2019 was hard for HSBC for several reasons: falling interest rates, protests in Hong Kong, and the coronavirus outbreak all had an impact. Low interest rates make lending less profitable, and interest rates have been falling globally for some time. Asia is HSBC's most profitable region, and Asia is also where the majority of coronavirus cases outside China have occurred. The British bank was also affected by the uncertainty surrounding Brexit and the US-China trade war.
Moving into 2020, HSBC doesn't expect things to get any easier.
The bank warned that the outbreak is "causing economic disruption in Hong Kong and mainland China and may impact performance in 2020." If the outbreak extends into the second half of 2020, HSBC estimates that they will have to adjust to another $600 million in credit losses. Despite the virus, the bank sees mainland China, Hong Kong, and Asia as a "core engine of growth for the business over the next few years."
