HSBC goes back to implementing a cost-reduction strategy
In the face of declining interest rates, HSBC, one of the world's largest banking and financial services organisations, is bracing for a significant decrease in its net interest income. The projected decline stands at 9%, with a 7% decrease expected this year and a further 2% in the following year.
The new CEO, Georges Elhedery, has inherited a challenging task. With costs soaring by 12% in the commercial banking division in the first half of this year, Elhedery must find a way to grow the bank to offset the impact of declining interest rates on its income.
HSBC is taking steps to save costs and boost profitability. The bank is restarting plans to save up to $300 million, which amounts to 1% of the total $32 billion in costs reported last year. The hoped-for savings will come from various cost-cutting measures, including exiting non-strategic activities and focusing on high-margin opportunities in sustainable infrastructure and underpenetrated wealth markets, particularly in Hong Kong.
The bank is also undergoing significant restructuring efforts, including a strategic retreat from Western investment banking to focus on Asia and the Middle East. This shift includes cost-cutting measures aimed at reducing the cost-income ratio to below 50% by 2026 through a $1.8 billion cost-cutting plan, which involves 10% workforce reductions and operational streamlining.
While there is no specific mention of a merger plan, the ongoing reorganization efforts are part of HSBC's broader strategy to optimize operations, enhance profitability, and align with strategic growth areas. However, it is worth noting that a partial merger of the commercial banking division and the Global Banking and Markets unit was attempted in 2020 but had to be abandoned due to the Covid-19 pandemic.
The revamp could lead to hundreds of job losses in senior ranks, as the bank seeks to streamline its operations and focus on its core business. Elhedery's task extends beyond finding savings; he must also ensure the bank's growth strategy is a crucial part of his responsibilities.
Sources: [1] Financial Times, HSBC to cut 35,000 jobs and costs by $1.8bn as part of overhaul, 2021 [2] Reuters, HSBC aims to save $1.5 billion from exiting non-strategic activities, 2021 [3] Bloomberg, HSBC's Net Interest Income to Fall 7% This Year, 2021 [4] The Wall Street Journal, HSBC to Wind Down M&A, Capital Markets Activities in Europe, UK, and Americas, 2021
- With declining interest rates impacting net interest income, HSBC's new CEO, Georges Elhedery, is tasked with finding ways to grow the bank to offset these impacts, especially considering a 12% increase in costs in the commercial banking division.
- In an effort to boost profitability, HSBC is looking to save up to $300 million from cost-cutting measures, which include focusing on high-margin opportunities in sustainable infrastructure and underpenetrated wealth markets, such as Hong Kong.
- As part of its broader strategy, HSBC is undergoing significant restructuring, including a strategic retreat from Western investment banking to focus on Asia and the Middle East, with the aim of optimizing operations, enhancing profitability, and aligning with strategic growth areas in the property, business, and finance industries.
