Just a few years ago, HSBC's status as a banking behemoth seemed unshakable. It appeared to have navigated the global banking crisis with relative aplomb. Despite taking a serious hit from its U.S. mortgage business, this was balanced by growth in its emerging markets business. Its aim to be the "world's local bank" seemed to have paid off.
Now at an investor day in London this Tuesday, Stuart Gulliver, the bank's chief executive, is set to launch a second big effort at root-and-branch reform in just four years.
This has already been one of the most dramatic years in HSBC's 150 year old history, with explosive allegations that its Swiss private bank helped hundreds of wealthy clients to evade tax. It is midway through a deferred prosecution agreement with the U.S. over earlier accusations it helped launder money for drug cartels and clients from Iran, and has even been dragged into the Fifa bribery scandal after processing payments allegedly used for bribes – although there is no suggestion the bank was aware of this.
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Along with some of its competitors, HSBC has also paid fines or compensation for the foreign exchange manipulation scandal, and the interest rate swaps mis-selling controversy. It has yet to settle with authorities over an expected fine as a result of the the Libor-fixing scandal.
So, what is Gulliver likely to announce, and will it please the bank's investors?
What’s going wrong inside the bank…?
Gulliver's earlier efforts to scale back HSBC's gigantic operations haven't quite managed to reach the ambitious targets he had set. Last year, return on equity hit 7.3 percent, down from 9.2 percent in 2013 and lower than the 10 percent targeted -- which had itself been cut from an earlier 12-15 percent target.
The various scandals have highlighted the problems of running an operation on the scale which HSBC now does.
All around the world, but particularly in the West, banks have found it increasingly difficult to negotiate the regulatory landscape. And the bigger the bank, the greater the hit. For example, the bank levy in the U.K., a charge on transactions, cost HSBC £700 million last year.
While the global economy has slowly recovered from the global financial crisis, it has been a slower process than many hoped for. This has made profits for banks around the world less buoyant.
What's likely to be changed?
Large parts of HSBC's Brazil and Turkey operations are already up for sale, and are expected to raise close to $5 billion together, but further retrenchment in emerging markets may also follow. Mexico and the U.S. have been highlighted by Gulliver as particularly troublesome. Unfortunately, job losses are also expected to hit thousands of the bank's 266,000 employees.
In its retail bank, much like its rivals, HSBC can cut numbers in its branches as more of its customers use its digital services. The investment bank could also suffer, after weaker performance in recent years.
The bank may also move its headquarters from London, probably back to its historical base Hong Kong. While no decision is expected for months, Gulliver may give more details on how the bank will make its choice.
Will it be enough?
Even before the revamp is announced, analysts are questioning whether it will be radical enough.
"HSBC has signalled that its strategy update on 9th June will be evolutionary rather than revolutionary but, in our view, it is probably the latter that is required," John-Paul Crutchley, head of the European banks team at UBS, wrote in a research note.
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