HSBC sets new earnings targets after 2019 profit falls 33%

HSBC is in over 50 countries across Europe, North America, the Middle East and Asia — with the latter accounting for roughly half of its revenue and 90 percent of profit. (AFP)
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Updated 18 February 2020

HSBC sets new earnings targets after 2019 profit falls 33%

  • A sluggish performance in Europe and the United States has pulled down HSBC’s returns
  • HSBC said the ongoing coronavirus epidemic had significantly impacted its staff and customers

HONG KONG/LONDON: HSBC on Tuesday unveiled plans to cut $100 billion in assets, slash its investment bank and restructure in the United States and Europe, as it launched its biggest overhaul in years in a bid to improve returns.
The restructuring announcement comes against the backdrop of its 2019 profit before tax dropping 33 percent, hit by one-time write-offs linked to its investment banking and commercial banking businesses in Europe.
The wider strategy overhaul also comes amid slowing economic growth in HSBC’s major markets, an outbreak of a fast-spreading coronavirus, Britain’s protracted withdrawal from the European Union, and lower central bank interest rates.
While the London-headquartered bank has benefited from billions of dollars of investment in Asia over the last few years — mainly in China — sluggish performance in Europe and the United States has pulled down its returns.
The strategy update was presented by interim Chief Executive Noel Quinn. HSBC said the process for appointing a permanent CEO was ongoing and that it expected to make an appointment within six to 12 months as earlier outlined.
In announcing restructuring efforts, HSBC veteran Quinn is also auditioning for the permanent role of CEO, people with knowledge of the matter said earlier.
“This should create a leaner, simpler and more competitive group that is better positioned to deliver higher returns for investors,” Quinn said in a statement, referring to the restructuring initiatives.
Europe’s biggest bank by assets, which makes the bulk of its revenue in Asia, reported profit before tax of $13.35 billion for 2019 versus $19.89 billion a year earlier. That compared with the $20.03 billion average of brokerage estimates.
The profit drop was a result of $7.3 billion in write-offs linked to its global banking and markets and commercial banking business units in Europe, HSBC said in its earnings statement.
The bank said it planned to achieve a reduced adjusted cost base of $31 billion or below in 2022, underpinned by a new cost reduction plan of $4.5 billion, and return of tangible equity in the range of 10 percent to 12 percent in the same period.
In 2019, the bank reported a return on equity of 8.4 percent, down from 8.6 percent in 2018.
HSBC is in over 50 countries across Europe, North America, the Middle East and Asia — with the latter accounting for roughly half of its revenue and 90 percent of profit.
In the US, where the bank has underperformed for years, HSBC said it needed “to reshape the US business in order to improve returns” and would close around a third of its 224 branches and target only international and wealthier clients.
As part of its efforts to simplify the group structure, HSBC said it would combine its retail banking and wealth management business unit with global private banking to create one of the world’s largest wealth management businesses.
The bank will also reduce its sales and research coverage in European cash equities with a focus on supporting equity capital market transactions, it said.
Reuters reported last month, citing people familiar with the matter, that HSBC was cutting around 100 roles in its cash equities business with the bulk of the layoffs falling on its continental European trading floors.
HSBC said the ongoing coronavirus epidemic had significantly impacted its staff and customers, and that the outbreak could in the long run reduce its revenue and cause bad loans to rise as supply chains are disrupted.
“Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains,” Quinn said.
The number of new coronavirus infections in mainland China fell below 2,000 on Tuesday for the first time since January, although global experts said it is still too early to say the outbreak is being contained.


China says it has sold nearly four billion masks abroad

Updated 54 min 31 sec ago

China says it has sold nearly four billion masks abroad

  • Beijing has encouraged factories to increase production of medical supplies
  • China has also exported 37.5 million pieces of protective clothing, 16,000 ventilators and 2.84 million COVID-19 testing kits since March 1
BEIJING: China has sold nearly four billion masks to foreign countries since March, officials said Sunday, as they tried to stem widespread fears over the quality of medical exports.
Despite Chinese cases dwindling, Beijing has encouraged factories to increase production of medical supplies as the pandemic kills over 60,000 globally and parts of the world face a protective equipment shortage.
China has exported 3.86 billion masks, 37.5 million pieces of protective clothing, 16,000 ventilators and 2.84 million COVID-19 testing kits since March 1, customs official Jin Hai said, with orders to more than 50 countries.
She added the country’s medical supply exports were valued at $1.4 billion.
However numerous nations — including the Netherlands, the Philippines, Croatia, Turkey and Spain — have complained about substandard or faulty medical products shipped from China.
Last week, the Dutch government recalled 600,000 masks out of a Chinese shipment of 1.3 million that did not meet quality standards.
China said the manufacturer “stated clearly that (the masks) are non-surgical.”
Spain also rejected thousands of rapid test kits sent by an unauthorized Chinese company after it found that they were unreliable last week.
Chinese officials hit back on Sunday at media reports over defective medical supplies, saying that they “did not reflect the full facts.”
“In reality there are various factors, such as China having different standards and different usage habits to other countries. Even improper use can lead to doubts over quality,” said Jiang Fan, an official with the Ministry of Commerce.
The comments echoed remarks from Foreign Ministry spokeswoman Hua Chunying, who over the past week has repeatedly urged Western media not to “politicize” or “hype up” the issue.
Earlier this week, Beijing tightened regulations for exported coronavirus medical equipment, requiring products to fulfil both domestic licensing standards and that of their destination countries.
China has also increased its production capacity of COVID-19 testing kits to over 4 million a day, said Zhang Qi, an official with the National Medical Products Administration.