HSBC has unveiled a goal of saving $300mn in 2025 and cutting $1.5bn from its annual cost base by the end of next year, as it detailed the impact of chief executive Georges Elhedery’s overhaul for the first time.
The bank said on Wednesday it would also aim to redeploy about $1.5bn from “non-strategic activities” to areas where it had a competitive advantage. It expected its actions to trigger $1.8bn in upfront costs, including severance, in 2025 and 2026.
HSBC gave the figures in a full-year earnings report that showed a pre-tax profit of $2.3bn in the final three months of 2024, up $1.3bn year on year. The Financial Times reported the $1.5bn in planned savings last week.
Since becoming chief executive in September, Elhedery has embarked on a radical restructuring of the UK-based bank. The changes include redrawing HSBC’s operations into “eastern” and “western” units, closing key parts of its investment banking business and merging two of its three main units. In the process, it is axing an expensive layer of senior bankers.
“I have put in place a smaller, core team of exceptionally talented leaders driven by a growth-orientated mindset and a firm focus on dynamically managing our costs and capital . . . we look to the future with confidence and clarity of purpose,” Elhedery said in a statement.
The report set out a proposed pay package worth up to £15.3mn for Elhedery, a figure the FT reported this month. HSBC said that figure could rise to £19.8mn if the bank’s share price jumps 50 per cent, a structure that gives Elhedery a strong incentive to boost its stock.
HSBC held the total value of its bonus pool steady at $3.8bn for 2024, a figure that will be shared among fewer bankers after the job cuts.
The overhaul “elevates and empowers” key areas of the bank such as its UK and Hong Kong units and its wealth business, Elhedery said during a call with reporters, adding that it had “eliminated large parts of our complex matrix governance structure”.
He said the bank would invest in areas such as wealth management, transaction banking and serving UK small and medium-sized businesses.
The bank had been “punching below our weight” in UK business banking and needed to “catch up”, he said. It would also invest in artificial intelligence technology, he said.
HSBC’s Hong Kong-listed shares closed higher on Wednesday but were trading 0.7 per cent lower in early trading in London.
The bank has kicked off a search for a new chair to replace Mark Tucker, whose nine-year tenure will end in October 2026. The new chair is expected to be external. Tucker was the first outsider to hold the position in the bank’s history when appointed in 2017.
HSBC’s pre-tax profit for the year to December rose 6.6 per cent to $32.3bn, beating analysts’ estimates of $31.7bn.
The company announced a fourth interim dividend of 36 cents a share, taking the 2024 total to 87 cents, and said it planned a $2bn share buyback, the latest of a series in recent years.
It separately pushed back a target to achieve net zero emissions in its operations and supply chain to 2050, from a previous ambition of 2030. It said tech suppliers’ increasing investments in highly polluting data centres and in AI services were partly to blame.
Its net interest margin, a crucial measure of lending profitability, fell 10 basis points to 1.56 per cent.
The margin — the difference between the interest the bank receives from making loans and the rate it pays out to depositors — rose alongside interest rates in recent years but started falling last year, a sign that the boost from rising rates had tailed off.
That puts the bank under pressure to cut costs and boost income in areas less dependent on higher rates. Net interest income, which accounts for more than half its total revenue, was $32.7bn for the full year, down from $35.8bn a year ago.
The bank reported $4.6bn in defaulted commercial real estate loans to Hong Kong borrowers, excluding exposure to those in mainland China.
The figure rose almost eightfold from $576mn a year earlier, as the territory’s real estate market struggles. The credit-impaired Hong Kong loans comprised 14 per cent of HSBC’s total commercial real estate lending in the territory and 6.3 per cent of its commercial real estate lending globally. Elhedery said he had a “good positive outlook” on Hong Kong commercial real estate and that it was not a “major driver” of its expectations of future credit losses.
HSBC made $3.4bn in provisions for bad loans, more than the $3.1bn analysts had expected, as it braced for losses linked in part to Hong Kong and Chinese property.
The number of full-time equivalent staff fell more than 9,500 last year to 211,304, in part because of the sale of HSBC units, including in Canada, France and Argentina. Costs rose 3 per cent to $33bn, due in part to inflation and investment in technology, the bank said.
Its return on tangible equity, a measure of profitability, was 14.6 per cent, in line with the previous year’s figure.
The bank reported just over $1bn in investment banking revenues for 2024, a fraction of its total revenues of $65.9bn. HSBC said last month it was closing its mergers and acquisitions advisory and its equity capital markets businesses outside Asia and the Middle East.
“Insofar [as] an Asian customer wants to conduct a specific M&A activity in the UK and Europe, we believe this business is not for us”, Elhedery said. “We have been not very effective at delivering it.”
Additional reporting by Kenza Bryan
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