By Simon Clark and Quentin Webb
HSBC Holdings PLC, one of the world's largest banks, said it would pour about $6 billion of extra investment into Asia in the next five years, and could sell its unprofitable U.S. retail operations, as it doubles down on its core business.
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 it had tweaked its strategy as the pandemic had driven a surge in digital banking, sustainability had grown in importance, and as interest rates were likely to be "lower for longer."
The bank said Tuesday that earnings 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 versus less than $3 billion in 2019.
Chief Executive Noel Quinn is leading the reorganization, though geopolitical tension has strained his 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.
"We plan to focus on and invest in the areas in which we are strongest," Mr. Quinn said. As part of that, the bank wants to be a market leader in serving rich Asian customers. Other areas that HSBC consider 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 an additional $6 billion 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.
HBSC 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 may unload some retail operations. HSBC said it was "exploring organic and inorganic options" for its U.S. retail business, which had a pretax loss of $547 million last year. It had previously said it wanted to keep a "targeted retail offering for international and affluent clients" in the U.S.
The bank also 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 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 firstname.lastname@example.org and Quentin Webb at email@example.com
(END) Dow Jones Newswires