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HSBC’s share price slips on profit fall and major restructuring plan

HSBC’s share price slips on profit fall and major restructuring plan

HSBC's share price has slipped on the back of its full-year results, after the bank confirmed that pre-tax profit dropped by 33% to $13.3 billion.

HSBC share price in two-year downtrend

The much-awaited numbers showed the group plans to cut around 35,000 jobs in the next few years, which would equate to roughly 15% of the workforce. HSBC’s share price has been in a downtrend for the past two years, and management are keen to shake off the bearish trend.

In a drastic move the finance house plans to greatly reduce its risk-weighted assets, which will entail cutting back on its trading activities, but the bank will focus on more profitable parts of the business. The overhaul of the organisation will involve taking impartments of more than $7 billion. The group returned 21 cents to shareholders in the form of a dividend, but as a part of its restructuring plan, the share buyback programme will be halted for 2020 and 2021.

The common equity tier 1 ratio is a closely-watched liquidity metric, and it improved to 14.7% from 14% last year, so the bank is in good health in that respect; it just needs to whip itself into shape.

The coronavirus crisis has caused major disruption to businesses all across Asia, hence why HSBC has lowered its growth forecast for the region in 2020. The growth rate in the US business is tipped to cool in 2020.

HSBC performance "not acceptable"

The HSBC share price took a knock in late October when the group announced an 18% drop in third-quarter pre-tax profit. The London-listed bank earns the lion’s share of its revenue in the Far East, so the political unrest in Hong Kong hurt. HSBC claimed the business "held up well" despite the rumblings in the region. Noel Quinn, the interim CEO, said the firm performance in the US as well as Europe was "not acceptable".

In a prior update to the third-quarter numbers, the company said it intends to cut up to 10,000 jobs. Traders got the impression the bank was at a crossroads and looked to be heading down the cost-cutting route. HSBC didn’t overindulge on mortgage lending like many European banks did pre-2007, and the bank’s large exposure marked it out from other LSE-listed finance houses.

Lending under pressure

The banking world is a different place now nowadays. Most companies are cutting back on their trading departments as it is a relatively volatile business, but in the low interest-rate environment, the lending side of the group is under pressure. In the third-quarter, HSBC confirmed that net-interest margin dropped from 1.67% to 1.59%. Interest rates are likely to stay low for some time to come, so lending margins are likely to remain under the cosh. HSBC recently announced plans to focus more on private banking in Asia – they are clearly keen to tap into the network of wealthy individuals in the Far East.

The HSBC share price has been dragged around by the coronavirus crisis, and at the height of the panic selling, the stock price fell to a three-and-a-half year low, but has since rebounded.


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