HONG KONG • HSBC Holdings signalled yesterday that it would embark on a pandemic-induced overhaul of its business model, seeking to flip its main source of income from interest rate to fee-based businesses.
While reporting a 35 per cent tumble in quarterly profit, Europe's largest bank also accelerated plans to shrink in size and will slash costs further than previously suggested.
The planned changes to its business model mark one of the biggest shifts in strategy for HSBC, which has long touted its ability to generate interest income from its more than US$1.5 trillion (S$2 trillion) in customer deposits.
But with interest rates worldwide now at rock bottom and even turning negative, the bank is struggling to charge more for loans to borrowers than it pays out to depositors and it warned that net interest income would remain under pressure.
In a potentially seismic shift for the banking industry, HSBC also said it could start charging for products such as current accounts that customers in some markets such as Britain expect to be free.
"We will have to look at charging for basic banking services in some markets because a large number of our customers in this environment will be losing us money," chief financial officer Ewen Stevenson told Reuters.
That could prove a tough pill to swallow in some markets, industry experts said.
"It will need to be done carefully to not damage the trust of the brand or get customers to switch, especially in countries where competitors offer the service for no charge," said Mr Sudeepto Mukherjee, senior vice-president, financial services, at consulting firm Publicis Sapient.
Faced with fewer options to bolster revenue growth, Asia-focused HSBC has been looking to reduce costs globally and in June resumed plans to cut around 35,000 jobs it had put on ice after the coronavirus outbreak.
The bank has no immediate plans to cut even more jobs, Mr Stevenson said, but that could happen as its transformation plans continue.
HSBC said yesterday it plans to reduce annual costs to below US$31 billion by 2022, a more ambitious target than it set out in February and well below the operating expenses of US$42.3 billion it reported in 2019.
It will also accelerate the transformation of its US business, where it has long struggled to compete with bigger local players, and will provide an update at its 2020 full-year results next February.
The restructuring measures helped HSBC's shares climb more than 5 per cent, although they have still lost nearly half their value for the year to date.
Underscoring its challenges, the bank's revenues fell 11 per cent compared with the third quarter last year to US$11.9 billion.
But the 35 per cent slide in pre-tax profit to US$3.1 billion was not as deep as expected, and was better than a consensus estimate of US$2.07 billion as HSBC flagged an easing in bad loan provisions.
HSBC now expects losses from bad loans to be at the lower end of the US$8 billion to US$13 billion range it set out earlier this year.
Government support schemes such as loans and wage support for workers have helped to genuinely mitigate some credit losses rather than merely defer them to next year, Mr Stevenson said.
"What these schemes have done in particular is buy time for a lot of the corporate sector to restructure themselves, and go out and raise debt and equity finance."
HSBC, in common with other British lenders, stopped paying dividends earlier this year at the request of regulators. It said it would communicate a revised dividend policy in February.
REUTERS
