HSBC Holdings PLC plans to accelerate its restructuring program to focus on high-growth areas like Hong Kong and has reiterated its commitment to the territory in the face of continued political upheaval.
Chairman Mark Tucker told the Asia Financial Forum that the U.K.-based bank needed to act more urgently in the face of "economic realities." He said the bank saw opportunities to expand in Southeast Asia, particularly in China's greater bay area, which includes Hong Kong.
Hong Kong has survived the coronavirus pandemic relatively well and is expected to bounce back quickly. At the bank's third-quarter results, expected credit losses for the Hong Kong business were just $0.1 billion, down 49% year over year.
Restructuring
The bank's previously announced restructuring program included cutting 35,000 jobs, slashing $4.5 billion in gross costs, incurring $7.2 billion in restructuring charges and cutting $100 billion of risk-weighted assets, or RWAs, by radically shrinking its U.S. and European businesses and investment bank.
At its third-quarter results, HSBC said it had cut $41 billion of its proposed $100 billion reduction in RWAs and expected that it would reach $50 billion by the end of 2020. It had also made $600 million of cost-savings.
"It will be an acceleration, bringing forward the cost-cuts, the restructuring charges and the risk-weighted assets program," said Fahed Kunwar, analyst at equities broker Redburn, in an interview. "Their U.S. strategy came under a lot of questioning over why they were keeping capital deployed in the U.S. when they were making 1% or 2% returns and it's a lot less now, so those questions will be heavily amplified."
He expects to see a further reduction in RWAs in the U.S. and a resulting increase in restructuring charges.
"They've made it clear that they are looking to increase the cost savings targets and the capital efficiency targets, so the only question is the revenue outlook," Edward Firth, analyst at investment bank KBW, told S&P Global Market Intelligence.
HSBC has been a full-service U.S. bank for 40 years but is now reportedly weighing up a complete exit from U.S. retail banking. The division made a pretax loss of $518 million in the first three quarters of 2020 following losses of $279 million in 2019 and $182 million in 2018.
Tucker said there were "substantial opportunities" for the bank, particularly in its wealth management operations.
In October 2020 the bank said most of its investment would go to Asia and that its RWAs in Asia were up 3 percentage points year over year to 44%. It also said it would hire up to 3,000 planners for its Pinnacle digital wealth planning and insurance services in China over the next four years. Pinnacle Venture is the first foreign financial technology subsidiary licensed by Chinese authorities.
HSBC's wealth management operations grew 9% to $2.16 billion in the third quarter of 2020, compared with the same period in 2019, with wealth balances up 9% to $1.5 trillion. In the first nine months of the year wealth management revenue stood at $5.76 billion.
An indication that the restructuring is working will be when revenue and return on tangible equity start to improve, said Kunwar.
He said revenue growth and returns growth will be key.
"HSBC has always talked of itself as an 11.5% to 12.5% returns business, but at the moment its returns are heading more towards 8% because of the change in the rate environment," he said.
Political turmoil
The bank faces considerable political challenges in its development plans for Hong Kong and China.
It has incurred the wrath of politicians in both the U.K. and the U.S. after indicating support for China's national security law in Hong Kong, which allows penalties for crimes of secession and subversion.
HSBC group CEO Noel Quinn was summoned to appear before MPs on the U.K. Parliamentary Foreign Affairs Select Committee on Jan. 26 to answer questions about the bank's move to freeze the account of now-U.K.-based, pro-democracy activist and former Hong Kong legislator Ted Hui at the request of the Hong Kong police.
Quinn said the bank was obliged to act within the law in all the jurisdictions in which it operates, though the MPs accused him of trying to "appease" China.
He repeatedly stressed the bank's commitment to Hong Kong, no matter what the circumstances.
"Today is a particularly challenging time, I acknowledge that, but I am 100% committed to Hong Kong, to the people of Hong Kong," he said.
"Am I willing to walk away from Hong Kong? The answer is 'no.' We are too committed as an institution through our heritage, our history." HSBC traces its origins back to The Hongkong and Shanghai Bank, founded in Hong Kong in 1865.