Banking giant HSBC has launched a major revamp, with plans to sell underperforming assets and boost profits. It will cut its assets by a quarter and plough most of the capital released into fast-growing Asia, which accounted for 78% of last year’s $19bn of pre-tax profits. Costs are set to fall by $5bn overall – 25,000 jobs will go, including 8,000 in the UK, where it has decided to rebrand its high-street retail business after 2018.
It may revive the Midland name, or call it First Direct, the name of its current phone and internet bank. That business could then be spun off. HSBC also released a document called “Structured Review of Location of Holding Company”, which spelt out 11 criteria for its decision on where to base its headquarters. It has been threatening to re-domicile in Asia, from the UK.
What the commentators said
HSBC wins “this week’s prize for cheek”, said The Independent. Despite a long list of transgressions, including mis-selling payment protection insurance (PPI), alleged money laundering and aggressive tax avoidance, it is now resorting to “blackmail”. The noise over a potential move to Asia seems designed to get the government to reduce or scrap the banking levy. HSBC also wants the state to dilute plans to split investment banks from retail banks, by implying that the UK retail operation would be ditched if HSBC can’t influence its strategy.
Yet it’s hardly as though the levy has been a major drain on resources compared to HSBC’s self-induced problems, as Ruth Sunderland noted in the Daily Mail. It has paid $3bn since the tax was introduced, but in recent years has faced over $11bn of fines and legal bills. What’s more, pushing through the latest revamp will cost $4bn. And upping sticks to Hong Kong or Singapore isn’t as easy as it sounds, said James Moore in The Independent.
HSBC makes great play of transparency and stable legal frameworks, but who knows whether China will maintain its current hands-off approach to Hong Kong. And if it chooses Singapore, “Beijing might not be too impressed” and could thwart efforts to expand in mainland China.
The review itself was underwhelming, as Nils Pratley noted in The Guardian. The prize is a return on equity (a key gauge of profitability) of 10%. Yet that’s no great shakes. The worry is that, even after the “pivot to Asia”, HSBC may “still be too big and too sprawling” to run efficiently. What’s more, version A of this broad plan was introduced in 2011, since when Brazil and Turkey have declined and Asian competition grown more intense. “HSBC is still struggling to keep up.”