HSBC Sharpens Focus on Asia -- 2nd Update
23 February 2021 - 8:10PM
Dow Jones News
By Simon Clark and Quentin Webb
HSBC Holdings PLC, one of the world's largest banks, said it
would pour about $6 billion of extra investment into Asia in the
next five years, and could sell its unprofitable U.S. retail
operations, as it doubles down on its core business.
The London-based lender, which makes most of its profit in Hong
Kong and mainland China, is already one year into a major overhaul.
But it said it had tweaked its strategy as the pandemic had driven
a surge in digital banking, sustainability had grown in importance,
and as interest rates were likely to be "lower for longer."
The bank said Tuesday that earnings fell 35% to $3.9 billion
last year as the coronavirus pandemic roiled the global economy.
HSBC set aside $8.82 billion in provisions for bad loans last year
versus less than $3 billion in 2019.
Chief Executive Noel Quinn is leading the reorganization, though
geopolitical tension has strained his ambition for the bank to be a
financial bridge between China and the rest of the world. HSBC last
year supported China's imposition of a national security law in
Hong Kong, which the U.S. and British governments opposed.
"We plan to focus on and invest in the areas in which we are
strongest," Mr. Quinn said. As part of that, the bank wants to be a
market leader in serving rich Asian customers. Other areas that
HSBC consider core include retail banking in Hong Kong and Britain,
cross-border trade, and facilitating trade and capital flows into
and across Asia.
The bank said it would invest an additional $6 billion in its
wealth-management and international wholesale businesses to drive
growth in Asia. In the next three to six years, HSBC also aims to
allocate half of all its capital to the region, based on an
industry measure known as tangible equity, up from 42% in 2020.
HBSC will also spend more to digitize faster and to build on its
strengths in sustainable finance.
The bank's head count fell 3.9% in 2020 to slightly more than
226,000. Last year, HSBC said it would cut 15% of its
235,000-strong workforce over time and reduce business lines and
customer relationships across the U.S. and Europe.
At the same time, HSBC said it may unload some retail
operations. HSBC said it was "exploring organic and inorganic
options" for its U.S. retail business, which had a pretax loss of
$547 million last year. It had previously said it wanted to keep a
"targeted retail offering for international and affluent clients"
in the U.S.
The bank also said it was in negotiations over a sale in France,
which is likely to generate a loss if concluded. HSBC, which has
been considering disposing of its French retail bank since at least
2019, is in talks with private-equity firms about the sale, people
familiar with the situation said. Its expansion into France was
built on the 2000 purchase of Credit Commercial de France for $10.6
billion.
Founded in Hong Kong and Shanghai in 1865, HSBC expanded
world-wide in the 1990s and early 2000s through costly takeovers,
many of which it had to unwind. The bank took a big step into the
U.S. in 2003 with the $16 billion takeover of subprime consumer
lender Household International Inc., but the acquisition saddled
the bank with billions of dollars of soured mortgages and lawsuits
following the global financial crisis of 2008. HSBC sold its U.S.
credit-card business to Capital One Financial Corp. in 2012.
The U.S. expansion brought more trouble for HSBC when the
Justice Department accused it of laundering proceeds from drug
trafficking in Mexico and stripping data from transactions
involving sanctioned nations like Iran to avoid detection. The bank
paid a then-record $1.9 billion in 2012 to settle the allegations.
HSBC admitted wrongdoing but avoided a guilty plea or prosecutions
of its executives.
HSBC's London-listed shares lost more than a third of their
value in 2020 but have risen 14% in the year through Monday. On
Tuesday, its shares were down 2% in early trading in London.
HSBC said it would pay a dividend of 15 cents a share, after
previously putting payments on hold for several quarters to comply
with British regulatory demands, angering some shareholders in Hong
Kong.
The international lender said global political frictions
remained a concern. "The geopolitical environment remains
challenging--in particular for a global bank like HSBC--and we
continue to be mindful of the potential impact that it could have
on our strategy," it said.
In January, Mr. Quinn defended HSBC's stance on Hong Kong to
British lawmakers, saying he wasn't "going to comment on democracy"
because he is a banker, not a politician.
For 2020, the bank reported a return on tangible equity of 3.1%,
down from 8.4% a year earlier, and dropped its previous goal of
reaching a 10% to 12% return on this basis by 2022. Instead, it
will target a return of 10% or more in the medium term.
Write to Simon Clark at simon.clark@wsj.com and Quentin Webb at
quentin.webb@wsj.com
(END) Dow Jones Newswires
February 23, 2021 03:55 ET (08:55 GMT)
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