HSBC : Sharpens Focus on Asia, Retreats From U.S. -- 3rd Update

By Simon Clark and Quentin Webb

HSBC Holdings PLC, a global bank ensnared by tensions between China and the West, is doubling down on Asia, shifting capital, jobs and investment to the region as it pulls back from the U.S. and Europe.

The London-based lender, which makes most of its profit in Hong Kong and mainland China, is already one year into a major overhaul. But it said Tuesday that it is considering selling its unprofitable U.S. retail operations and pouring about $6 billion of investment into Asia in the next five years.

The announcement came as the bank said net profit fell 35% to $3.9 billion last year as the coronavirus pandemic roiled the global economy. HSBC set aside $8.82 billion in provisions for bad loans last year, compared with less than $3 billion in 2019.

Geopolitical tensions have strained Chief Executive Noel Quinn's ambition for the bank to be a financial bridge between China and the rest of the world. HSBC last year supported China's imposition of a national security law in Hong Kong, which the U.S. and British governments opposed.

HSBC is "moving the heart of the business to Asia, including leadership, " Mr. Quinn said, though he declined to name bankers relocating to Hong Kong. "The bank will continue to be domiciled in London but I think it is important for some of the executive team to be closer to the growth opportunities, particularly those in front line roles," he said.

HSBC's strategy may also be seen as a shot in the arm for Hong Kong, whose reputation as an international business hub is under threat from China's tightening control.

Mr. Quinn said the bank would "stop trying to be everything to everyone" and focus on priorities including being a market leader in serving rich Asian customers. Other areas that HSBC considers core include retail banking in Hong Kong and Britain, cross-border trade, and facilitating trade and capital flows into and across Asia.

The bank said it would invest in its wealth-management and international wholesale businesses to drive growth in Asia. In the next three to six years, HSBC also aims to allocate half of all its capital to the region, based on an industry measure known as tangible equity, up from 42% in 2020.

HSBC will also spend more to digitize faster and to build on its strengths in sustainable finance.

The bank's head count fell 3.9% in 2020 to slightly more than 226,000. Last year, HSBC said it would cut 15% of its 235,000-strong workforce over time and reduce business lines and customer relationships across the U.S. and Europe.

At the same time, HSBC said it might unload some retail operations, including its U.S. retail business, which recorded a pretax loss of $547 million last year. HSBC had previously said it wanted to keep a "targeted retail offering for international and affluent clients" in the U.S.

"We have a branch network and a franchise in the U.S. that could be attractive to potential buyers," Mr. Quinn said.

The bank said it was in negotiations over a sale in France, which is likely to generate a loss if concluded. HSBC, which has been considering disposing of its unprofitable French retail bank since at least 2019, is in talks with private-equity firms about the sale, people familiar with the situation said. Its expansion into France was built on the 2000 purchase of Credit Commercial de France for $10.6 billion.

Founded in Hong Kong and Shanghai in 1865, HSBC expanded world-wide in the 1990s and early 2000s through costly takeovers, many of which it had to unwind. The bank took a big step into the U.S. in 2003 with the $16 billion takeover of subprime consumer lender Household International Inc., but the acquisition saddled the bank with billions of dollars of soured mortgages and lawsuits following the global financial crisis of 2008. HSBC sold its U.S. credit-card business to Capital One Financial Corp. in 2012.

The U.S. expansion brought more trouble for HSBC when the Justice Department accused it of laundering proceeds from drug trafficking in Mexico and stripping data from transactions involving sanctioned nations like Iran to avoid detection. The bank paid a then record $1.9 billion in 2012 to settle the allegations. HSBC admitted wrongdoing but avoided a guilty plea or prosecutions of its executives.

HSBC's London-listed shares lost more than a third of their value in 2020 but have risen 14% in the year through Monday. On Tuesday, its shares were down 2% in early trading in London.

HSBC said it would pay a dividend of 15 cents a share, after previously putting payments on hold for several quarters to comply with British regulatory demands, angering some shareholders in Hong Kong.

The international lender said global political frictions remained a concern. "The geopolitical environment remains challenging -- in particular for a global bank like HSBC -- and we continue to be mindful of the potential impact that it could have on our strategy," it said.

In January, Mr. Quinn defended HSBC's stance on Hong Kong to British lawmakers, saying he wasn't "going to comment on democracy" because he is a banker, not a politician.

For 2020, the bank reported a return on tangible equity of 3.1%, down from 8.4% a year earlier, and dropped its previous goal of reaching a 10% to 12% return on this basis by 2022. Instead, it will target a return of 10% or more in the medium term.

Write to Simon Clark at [e-mail] and Quentin Webb at [e-mail]

Corrections & Amplifications

This item was corrected on March 4, 2021 to reflect that HSBC will spend more to digitize faster. The original version incorrectly misspelled the bank as HBSC in the ninth paragraph.

(END) Dow Jones Newswires

02-23-21 0710ET