Is HSBC Planning Fresh Restructuring To Exit More Countries?

Management at HSBC Holdings (LON:HSBA) (NYSE:HSBC) is mulling fresh restructuring amid muted profitability. CEO John Flint and Chairman Mark Tucker have begun reviewing the bank’s global footprint, per a Bloomberg report.

The three-year plan, still at a nascent stage, is expected to be unveiled around the time of the company’s first-half results.

What’s Up for Review?

As part of the review process, Flint is assessing nearly 25% of the 67 countries where HSBC operates. The company intends to exit or divest smaller consumer banking businesses in Bermuda, Malta and Uruguay.

Additionally, top executives are looking to expand the wealth and asset management division, through a potential merger with a peer. A possibility of creating a new entity is in the cards as well.

While HSBC’s retail banking and wealth management units are combined given the overlapping of rich clients between the two, a potential merger expected to create a bigger firm, will likely garner larger market share as the industry consolidates.

Why the Fresh Assessment?

Since 2011, HSBC has undertaken restructuring drive thrice, with an aim to focus more on profitable markets and strengthen operating efficiency. The company was, thus, able to significantly lower expenses and simplify business by cutting jobs and closing/divesting unprofitable operations.

Through such streamlining efforts, HSBC was able to lower the number of countries it operates in to 67 from 88. Despite this, with almost $2.5 trillion assets, it is still the largest European bank.

Despite these initiatives, HSBC is grappling with revenue slump owing to low interest rates and stringent regulatory requirements. Also, the company’s legacy business misconduct matters have resulted in several litigations and probes. While announcing its 2017 results, HSBC revealed that it is being investigated in several countries and expects aggregate penalties of up to or more than $1.5 billion.

Therefore, such concerns have led to the further review of the operations. But this time, profitable businesses are part of the assessment.

Now, top management’s primary aim is to accelerate HSBC’s pivot to Asia plan. So, several smaller and non-core businesses are expected to be closed or sold.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have declined 3.8%, against industry’s rally of 5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other than HSBC, several other global banks including Barclays (NYSE:BCS) , Deutsche Bank (NYSE:DB) and UBS Group AG (NYSE:UBS) have undertaken initiatives to boost efficiency by slashing unprofitable/non-core operations. Also, significant job cuts were announced.

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