HSBC (The Hongkong and Shanghai Banking Corporation) Holdings Plc recently announced that the bank will witness a major overhaul that would reduce the number of staff to 200,000 from 235,000 over the next three years.
The announcement comes after the bank reported that it has missed the pre-tax profit expectations after the bank took a goodwill impairment relating to its European investment banking and commercial banking businesses. HSBC recorded a 32.9% fall in pre-tax profit for 2019 to $13.35 billion, much lower than the Refinitiv forecast of $19.83 billion.
The recent layoffs can also be an update on interim Group CEO Noel Quinn’s strategy update which was to be unveiled on February 18. Quinn’s strategy can be seen as an attempt to boosting the profitability of Europe’s biggest bank by assets in a tough operating environment.
According to a company statement, Quinn highlighted that $7.3 billion goodwill impairment in Europe “arose from an update to long-term economic growth assumptions, which impacted a number of our businesses,” and from the “planned reshaping” of the bank’s global banking and markets business. The write-down resulted in a pre-tax loss of $4.65 billion in the bank’s European business.
He even addressed the impact of the novel Coronavirus outbreak, which has claimed the lives of 2,118 people, on the bank’s Asia business. The London-headquartered bank derives a bulk of its earnings from the Asian continent.
“Since the start of January, the coronavirus outbreak has created significant disruption for our staff, suppliers, and customers, particularly in mainland China and Hong Kong,” he said.
He further added, “Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China. 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.”
HSBC has been witnessing hot winds for the past few months now. Recently the bank had also announced senior management changes as a part of reorganization efforts. Former HSBC Mexico CEO Nuno Matos was named as the Chief Executive of HSBC Bank plc and Chief Executive of Europe effective 1 March 2020. Most of the leadership changes inside the bank will reportedly come in effect from March 2020 only. Many senior-level role executives across operations were also expected to be laid off with the recent leadership changes.
In October last year as well the bank had cut 10,000 jobs globally. At that time, it was seen that the job cuts are an outcome of shifts in the global banking sector, falling interest-rates, trade war between China and the United States and uncertainties stemming from the global trade war and Brexit.
The recent layoffs will surpass HSBC’s own record of cutting massive jobs earlier. In 2011 HSBC had undertaken massive layoffs involving over 30,000 employees. The layoffs during the tenure of then HSBC Group CEO Stuart Gulliver were aimed at cutting $3.5 billion in costs over three years to raise the bank’s return on equity to 12-15%.
Along with the layoff announcement, the bank has also proposed several structural changes. According to its new business strategy, the bank plans to suspend share buy-backs for 2020 and 2021. The restructuring also includes a reduction in sales and trading and equity research in Europe. The bank also plans to transition structured product capabilities from the U.K. to Asia.
It’s US business will see a reduction in branch network by 30% and re-position as an “international client-focused corporate bank,” with the targeted retail offering. The bank is also consolidating its retail banking and wealth management, and global private banking into a new division called wealth and personal banking.
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