HSBC to cut 35,000 jobs: why profits plunged
British bank announces 33% drop in profits and plans to slash branches in US
British bank HSBC has announced a steep fall in profits and warned it will now cut 35,000 of its 235,000-strong global workforce. It is not known how many jobs will go in the UK.
Founded as the Hong Kong and Shanghai Banking Corporation in the mid-19th century, HSBC makes most of its profit in Asia, despite being headquartered in London. Most of the drop in profits has come from its European operations.
What happened to profits?
Annual profit before tax for 2019 fell by 33% on the previous year, down to $13.35bn (£10.3bn), the bank reported. In the fourth quarter, HSBC made a loss of $3.9bn (£3bn), the Financial Times reports.
What drove the poor results?
The loss was largely due to a $7.2bn (£5.5bn) write-off in HSBC’s European investment and commercial banking operations. As such, it was not unexpected. The bank blamed it on “lower long-term economic growth rate assumptions”, notes the FT.
Factors behind the European problems include historically low interest rates worldwide and lower growth caused by the UK’s protracted exit from the EU, says the BBC.
Banking expert Peter Hahn, however, told the broadcaster he believed HSBC had been “too optimistic about their chances of success in investment banking” and lacked clout in the US.
What about coronavirus?
The rapidly spreading virus will have an impact on HSBC’s performance this year, commentators agree, but the current figures relate to last year. Covid-19 was identified in Wuhan, China, only in December 2019.
What will the bank do next?
HSBC today announced its third major restructure in a decade in an attempt to lift future profits. It plans to sell assets totalling $100bn (£77bn) and “dramatically downsize” its investment banking operations in a bid to save $4.5bn (£3.5bn) a year, says City AM.
Interim chief executive Noel Quinn told Reuters that HSBC will cut its global workforce by 15% or 35,000 – reducing the total from 235,000 to 200,000 – over the next three years. It is not known how many jobs might go in the UK but the BBC says the job losses are “deeper” than the 10,000 analysts had predicted. Around 40,000 people work for the bank in the UK.
Quinn said job losses would be achieved partly through natural attrition, and redundancies would be “managed in a sensible and sensitive manner”. In the US, HSBC has committed to cutting one third of its retail branches.
How did the markets react to the rescue plan?
Not well, says the FT. HSBC’s share price dropped 6% in early trading in London this morning. Some investors were disappointed HSBC was planning to prioritise its growth in Asia and other emerging markets, reports the newspaper.