HSBC is Trimming the Fat After 33% Drop in Profits

HSBC is Trimming the Fat After 33% Drop in Profits

Issue 8

02.24.20 - The 155-year-old institution is cutting 15% of its workforce amounting to 35,000 jobs being eliminated. The British multinational bank the Hong Kong Shanghai Banking Corporation founded in 1865 in a Hong in Hong Kong operates across 50 countries and employs 235,000 people. It is the largest European bank and the 7th largest bank in the world with assets in excess of $2.5 Trillion.

It plans to aggressively cut back $4.5 Billion in costs by 2022 in a massive restructuring plan. The bank makes the majority of its money in Asia however it’s decline in its profits are due to $7.3B in write-offs related to its investment and commercial banking operations in Europe. This follows a growing trend of a struggling European banking sector being hammered by ultra-low interest rates and unprofitable investments.

The bank employs 40,000 in the United Kingdom with 10,000 people at it’s Canary Warf headquarters in London. The bank plans to focus it’s cut in it’s in investment banking operations in Europe in the US as well as some of its retail banking operations while further expanding it’s Asia operations. The bank views Asia’s long-term outlook as strong in spite of the region's recent stagnation. Asia does account for half of the bank’s revenues and over 90% of the bank’s profits.

The move to double down on Asia may be flawed in the short run as it’s US banking presence is minuscule and underinvested in its investment banking presence in New York where there is more room for growth over the next decade. It does, however, make competition in their sandbox tougher for other regional powerhouses like Citibank.

Peter Hahn, banking expert and former dean of the London Institute of Banking & Finance told the BBC: "The reality is that the biggest investment market in the world is the US, and if you're not big in the US in investment banking it's pretty tough to succeed in that business - and they're not."

The bank has long stood the test of time and this will be the bank's third overhaul in a decade in an effort to sustain profitability, on the bright side, at least they’re not Deutsche Bank.