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HSBC to redeploy capital to Asia after missing profit target

Bank sees growth potential in region's retail banking and wealth management

HSBC said it plans to redeploy capital away from underperforming operations such as global banking and markets businesses to higher returning ones, including wealth management, retail banking and the faster-growing Asian markets.   © Reuters

HONG KONG -- HSBC Holdings interim CEO Noel Quinn on Monday revealed plans to revamp the bank by pulling back from underperforming businesses, abandoned a profit target and flagged "significant" charges in the current quarter as earnings missed expectations.

Quinn, who in a media conference call said he would like to run the bank full-time, wants to pare down the bank's continental Europe and U.S. business that consumed too much capital but generated insufficient returns and redeploy in areas such as retail banking and wealth management in Asia, Canada and Latin America.

He did not offer specific details on the overhaul and only said the lender expects to update investors before its full-year earnings results in February.

The Financial Times this month reported that Quinn, who was named interim CEO in August after John Flint was ousted from the position he held for less than 18 months, could slash as many as 10,000 jobs from its 238,000-strong workforce.

While the bank's Asian business held up in the quarter, "in some parts, performance was not acceptable, principally business activities within continental Europe, the non-ringfenced bank in the U.K., and the U.S.," Quinn said in a statement. "Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth. We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities."

The bank has been buffeted by five months of political unrest in Hong Kong where it earns half its profit, low interest rates that hurt client activity, uncertainty around Britain's exit from the European Union and the trade war between the U.S. and China.

The performance in Hong Kong was "resilient," and staff numbers there had increased by 1,000 in the past year, it said, although it increased a credit loss charge to reflect the city's economic outlook. Hong Kong has fallen into a recession and may not achieve economic growth this year, Financial Secretary Paul Chan said in a blog on Sunday.

The Asian business, which saw a 4% increase in reported profit before tax to $4.7 billion and posted growth across almost all segments, would naturally be a "recipient" of the capital redeployment, Quinn said. The bank added 2,000 staff in Asia over the year, he said.

The restructuring plans or a further revenue deterioration could result in "significant charges," the bank said. It shed its goal to achieve a return on tangible equity of more than 11% in 2020. The measure stood at 6.4% in the third-quarter, down from 11.7% three months earlier.

While the bank said charges in Hong Kong in the three months to Dec. 31 is expected to be similar to the third quarter, it may have to write down technology investment if it exited some segments and goodwill associated with its European businesses. It would also have to provide for severance cost if the restructure resulted in job losses, Chief Financial Officer Ewen Stevenson said in the media call.

While the board will decide on the CEO position, Quin said, "I and the management team are focused on doing what's right for the bank, addressing the issues we face and support the businesses that are performing well." 

The aim is to free up the bank to invest in the right technology and be agile enough to face "rapid change," he said.

Adjusted profit before tax, which excluded one-off items, fell 12% in the three months ended Sept. 30 to $5.3 billion, compared with $6.1 billion in the same period last year, the bank said. That missed the $5.7 billion consensus pretax profit estimate compiled by the bank.

Profit was affected by additional compensation for overcharging fees on customers and employees' severance costs, the bank said. Revenue fell 3% to $13.4 billion due to lower client activity in its global markets business, which offers trading across asset classes in more than 60 countries.

In contrast, its commercial banking business, wealth management and private banking expanded, the bank said.

HSBC shares ended 2.3% lower at HK$60.25 in Hong Kong, taking losses for the year to 5.5%. In early afternoon trade in London where the stock is also listed, it fell 4.2% to 591.3 pence apiece.

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