Major cost-cutting fails to lift HSBC’s shares
Europe’s largest bank HSBC (HSBA) has revealed plans to slash up to 15% of its workforce over the next three years after earnings more than halved in the year to 31 December.
Despite a 4% increase in revenue, net profits slid 53% to just $6bn from $12.6bn as the bank took a $7.3bn write-down on its investment banking and commercial banking units in Europe and a $2.8bn charge for bad loans.
Shares in the bank dived 6% to 555p making HSBC the worst performer in the FTSE 100 on the day of the news (18 Feb).
As part of its plan to increase returns the bank is taking capital away from the investment and commercial banking units, which interim chief executive Noel Quinn admitted are ‘not delivering acceptable returns’, and focusing on Asia where the bank continues to perform well.
As well as reducing capital it is cutting jobs, with the group headcount ‘likely to go from 235,000 to closer to 200,000 over the next three years’ according to Quinn.
Job cuts of this scale would normally drive up a share price as the market tends to like cost cutting. However, investors appear to be focused on the potential economic impact of coronavirus in China and Hong Kong and how that raises the risk that HSBC’s Asian business could struggle this year and the bank subsequently misses its targets.