HSBC's board is pushing bank executives to consider more radical changes, including the sale of its U.S. business, as it resumes the restructuring that was paused as the coronavirus pandemic took hold.
U.S. profits dropped 39% for the bank last year, and return on tangible equity in that arm stood at 1.5%, according to the Financial Times. That compares with a 15.8% return in Asia and 12% in the Middle East.
"What HSBC needs to understand is, for better or worse, their opportunity is in China," a source told the publication.
Another insisted that some form of U.S. business is a must for the bank, "but the shape we’ve got to look at again."
The size of the business, at least, appears to be a work in progress. HSBC announced plans in February to reduce its U.S. branch network by 30% and "consolidate middle and back office activities." The move came as part of the bank's strategic overhaul that would shed 35,000 jobs and $100 billion in assets by the end of 2022.
However, CEO Noel Quinn wrote in a memo the following month that, "because of the extraordinary impact of the Covid-19 pandemic," the bank had decided to "pause, for the time being, the vast majority of redundancies" tied to the restructuring.
At the time, some saw the prospect of cutting employees loose while they were working from home as a bridge too far.
"You can't fire a trader in Europe over the phone when he is either working from home or taking care of a sick family member," an HSBC source told Reuters in March.
But as the remote-work period stretched on, Quinn refined his stance, saying he would proceed with cuts "wherever possible."
Such a declaration stands in sharp contrast to U.S. banks such as Morgan Stanley, Citi and Bank of America, which pledged in March not to announce job cuts this year. However, none of those banks is undergoing an initiative as vast as HSBC's.
The exhaustive tuning up of the British lender's strategy shows consistent attention to detail by a bank in flux. It may also indicate patience is wearing thin with regard to a downsizing that is seen as inevitable.
One source told the Financial Times HSBC's board wants a whole new strategic plan, which might see the bank scale back its footprint in smaller, nonstrategic countries. HSBC kicked off the sale of its French retail business in January, contradicting reports last year that it wouldn't.
The board's review of a new plan may take months, but the feeling that the bank wants to make all of the cuts associated with its February plan — plus more, and immediately — is palpable.
"We've got to look at where we want to be in five years' time and get ourselves in position, not incrementally, but top down," one HSBC executive told the Financial Times. "We have a fundamental reorganization to do and we've delayed this, as a corporation, for 12 years."
HSBC isn't the only bank facing a long-term drawdown. Deutsche Bank announced plans last year to cut 18,000 jobs by 2022 and spin off $83 billion in assets it no longer wants.
But while the British lender's approach seems to stress urgency, Deutsche appears to be gauging buy-in from its employees — at least, the upper echelons.
The nine members of Deutsche's board agreed this month to forgo a month's salary as a show of solidarity and commitment to the overarching goal. Last week, they asked hundreds of the bank's "leaders," including some that are one level below the senior management committee, to do the same.
"As our restructuring plans progress, the management board and the group management committee have decided to lead by example and give a broader group of senior managers the opportunity to be part of this initiative," Jörg Eigendorf, a Deutsche spokesman, said in an emailed statement seen by Reuters. "This is a voluntary measure in the entrepreneurial spirit and discipline [with which] we are running our company."
The bank doesn't know how many "leaders" will participate, and the initiative could save Deutsche €10 million, which pales fiscally when compared to the restructuring as a whole. But the bank clearly sees value in the optics of a unified front.
This is not to say Deutsche's savings goals aren't aggressive in their own right. The bank's CEO, Christian Sewing, has vowed to cut costs by €2 billion this year — despite the impact of the coronavirus — and he has reportedly stuck by that figure.