HSBC chief executive Georges Elhedery has insisted that his plan to divide the bank’s operations into “eastern” and “western” sections is not a step towards a formal split.
Elhedery made the comments as the bank reported a rise in pre-tax profits and a share buyback of up to $3bn, in quarterly earnings released days after he unveiled plans for a sweeping overhaul on geographical lines.
“This is not either a precursor, or intention, or preparation for any split,” he said during a media call on Tuesday.
Elhedery, who took over as chief executive in September, announced last week that the bank would set up its Hong Kong operation and its UK retail bank as standalone units.
The lender plans to divide its other businesses between “eastern markets” of Asia-Pacific and the Middle East and “western markets” including operations in the UK, Europe and the Americas.
The plan reignited speculation that HSBC was preparing for an eventual split amid worsening geopolitical tensions between Beijing and the west. But Elhedery said the intention was to simplify the bank’s structure from five regions to two.
“Our customers cherish our capability of servicing them across their global needs,” he said. “This is a matter of streamlining. There is no geopolitical reason why we have done this, and there is no intent or preparation whatsoever for it being more than just a simpler and faster way to deliver to our customers.”
Elhedery said further information on the restructuring would be provided in February when HSBC announced its year-end results. “There will inevitably be [a] reduction of senior roles in the organisation,” he said, adding that the changes would happen in “a matter of months, not years”.
Elhedery said most of the savings would come from severance and the reduction of senior jobs, which was “the primary objective of this reorganisation”.
HSBC reported a rise in pre-tax profits for the third quarter of the year as growth in wealth management boosted its earnings. Pre-tax profits at the UK-based bank rose 10 per cent to $8.5bn from $7.7bn a year earlier, beating analysts’ expectations of $7.6bn.
The bank announced a share buyback of up to $3bn and a 10 cents a share interim dividend, bringing total distributions to shareholders this year to $18.4bn.
HSBC, one of the world’s largest deposit-taking institutions, has been a beneficiary of higher interest rates in recent years, but it has been under pressure to cut costs and show it can still grow.
Net interest income — which accounted for more than half of HSBC’s revenue last year — fell to $7.6bn in the third quarter, missing analysts’ estimates of $8.2bn.
The bank’s net interest margin, a key measure of lending profitability, fell to 1.46 per cent from 1.7 per cent the same time last year.
Growth in its wealth business boosted the lender as it worked to reduce its dependence on interest income. Global private banking revenues increased, with life insurance revenue more than doubling to $482mn over the past year.
The bank’s total costs rose to $8.1bn, up 2 per cent from a year ago, which it said was due partly to inflation and investments in technology. The bank has previously said it expects costs to rise about 5 per cent in 2024.
Under the restructuring, the lender will go from three divisions to four, separating its Hong Kong business and its UK ringfenced bank into standalone units.
The other two divisions will be “corporate and institutional banking” and “international wealth and premier banking”. Within those, operations will fall either into an eastern or western markets section.
The bank is based in the UK, but Hong Kong is by far the biggest single source of its revenues. It has sold or made plans to sell several parts of its business in the west.
The bank’s revenues, before accounting for changes in credit impairment charges, were $17bn, up from $16.2bn a year ago.
Its return on tangible equity, a measure of profitability, was 15.5 per cent for the first half of the year, down from 16.3 per cent three months earlier.
It made $1bn in provisions for bad loans, more than the $859mn analysts had expected, as it braced for losses linked to commercial real estate lending in Hong Kong and mainland China.
HSBC’s London-listed shares rose as much as 3.8 per cent on Tuesday.
