HSBC to cut $100 billion worth of assets in an attempt to improve returns in 2020

on Feb 18, 2020
Updated: Apr 15, 2020
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  • HSBC to cut $100 billion worth of assets in an attempt to improve returns in 2020.
  • HSBC posted a 33% decline in profit before tax in 2019 attributed to one-time write-offs worth $7.3 billion.
  • Coronavirus, lower interest rates, post-Brexit uncertainty, and global economic slowdown among other reasons for launching the overhaul.

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HSBC Holdings seems to be aiming for a massive improvement in its returns this year. Announcing its largest multi-year overhaul, the financial services company said that it plans on cutting a few of its assets worth $100 billion. As part of the restructuring in the U.S and Europe, HSBC will also be slashing its investment bank.

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HSBC strategized to restructure following a major blow to its profit (before tax) in 2019 that saw a 33% decline. Much of the drop, as per the experts, was attributed to one-time write-offs to HSBC’s commercial banking and investment banking units in Europe. The write-offs, as per HSBC’s recent earnings report, amounted to $7.3 billion last year.

Coronavirus Weighing Heavily On HSBC’s Profits In 2020

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Other reasons cited for the overhaul include the recent outbreak of Coronavirus in China, slower than expected economic growth in the company’s primary markets, ECB’s plans of sticking to lower interest rates, and the uncertainty of the post-Brexit scenario.

Headquartered in London, HSBC has made billions of dollars in profit from its widespread investments primarily in China and generally throughout different regions of Asia. With the ongoing health emergency in China and the performance in the U.S and European businesses seeing a sharp decline, HSBC anticipates the need to actively strategize for improvement in its returns.

The aforementioned strategy was announced by Noel Quinn who is serving as the interim CEO of the American multinational financial services company. Tuesday’s announcement also highlighted HSBC’s commitment to hiring a permanent CEO in the upcoming 6 to 12 months. As per the sources, Quinn also has a candidature for the permanent position of the company’s CEO.

HSBC Posted $13.35 Billion In Profit Before Tax In 2019

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HSBC is known as the largest European bank by assets that traditionally generates a huge chunk of its revenue from Asia. In 2019, HSBC’s profit before tax was capped at $13.35 billion versus a much higher $19.89 billion in 2018. Analysts had anticipated the company to print an even higher $20.03 billion in revenue last year.

In its estimate for 2022, the bank stated that it wishes to bring adjusted cost base down to $31 billion or lower with help from a recently launched $4.5 billion cost-cutting program. Tangible equity, on the other hand, is expected to print between 10% to 12% in the aforementioned time period. Return on tangible equity was recorded at 8.4% in 2019 versus a higher 8.6% in 2018.

Asia currently accounts for around 90% of HSBC’s annual profit and near 50% of its revenue.

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