Banks

HSBC CFO says to expect 'material action' against struggling business units

Key Points
  • HSBC, Europe's largest bank, plans to restructure its loss-making businesses after the lender reported an 18% on-year drop in pre-tax profit for the third quarter, group CFO Ewen Stevenson said. 
  • The bank is looking at ways to reshape its non-ring-fenced bank in the United Kingdom and its U.S. business, which, together account for just under a third of HSBC's capital.
  • Stevenson declined to reveal if job cuts will be a part of the bank's restructuring plans.
Ewen Stevenson, Group CFO at HSBC.
Chris J. Ratcliffe | Bloomberg | Getty Images

HSBC, Europe's largest bank, plans to restructure its loss-making businesses after the lender reported an 18% on-year drop in pre-tax profit for the third quarter, group CFO Ewen Stevenson said.

The bank is looking at ways to reshape its non-ring-fenced bank in the United Kingdom and its U.S. business, which, together account for just under a third of HSBC's capital, he told CNBC's "Capital Connection" on Monday.

Ring-fencing is a rule that requires U.K. banks to separate their retail business from their riskier wholesale and investment banking business.

"Returns are very, very weak across both of those businesses. We need to get those returns up, we haven't yet sized what that means in terms of the restructuring," he said, adding the bank is also trying to reduce complexity in its group operating structure to achieve some efficiency savings.

"We'll come back to the market as part of our full-year results in February but, you should expect us to take some material action against those parts of our businesses," Stevenson said.

He declined to reveal if job cuts will be a part of the bank's restructuring plans. The Financial Times reported earlier this month that HSBC's cost-cutting drive could threaten up to 10,000 jobs. Stevenson told CNBC on Monday: "We are not going to speculate on job cuts."

Still, Stevenson previously told the Wall Street Journal in August that HSBC is planning to cut thousands of jobs targeted at senior roles — in a combination of layoffs and attrition— and is expected to shave up to 4% of wage costs.

Hong Kong resilient

HSBC's pre-tax profit for the three months that ended in September fell below market expectation to $4.8 billion while reported revenue for the quarter was $13.36 billion.

By late afternoon trading, Hong Kong listed-shares of HSBC were down 2.8% following the report.

The U.K.-headquartered bank said its Asia operations, where it earns most of its profits from, strengthened in part due to a "resilient performance in Hong Kong."

Stevenson said that while the bank is "pretty pleased" with the way Hong Kong has continued to perform for HSBC, "there has been some deterioration in credit portfolios."

"The sector that we are most watching at the moment is the smaller end of the small business sector," he said.

Hong Kong has been crippled by widespread and increasingly violent demonstrations since June, which affected the city's many small and medium-sized businesses.

In its outlook, the lender pointed to a challenging revenue environment and projected "softer" growth than previously expected.

Stevenson said a shift in the interest rate cycle, where central banks are easing policy to support growth, posed the biggest challenge. The Hong Kong protests and the United Kingdom's planned departure from the European Union have also proved to be "more complex than what we thought a few months ago."

HSBC is searching for a new CEO after former boss John Flint was ousted and the bank's global commercial banking unit head, Noel Quinn, was appointed to the top job on an interim basis.

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Key Points
  • Europe's largest lender HSBC reported third-quarter pre-tax profits that fell from a year ago, despite strength in its Asia operations.
  • The bank said its before-tax profit in Asia climbed 4% from last year, noting a "resilient performance in Hong Kong."
  • Though the bank is headquartered in London, it earns most of its profits from Asia, particularly Hong Kong.