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HSBC CEO vows to ‘remodel’ the bank as profits fall

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
LONDON, UNITED KINGDOM - 2019/10/27: People walk past HSBC branch in central London. (Photo by Dinendra Haria/SOPA Images/LightRocket via Getty Images)
People walk past HSBC branch in central London. Photo: Dinendra Haria/SOPA Images/LightRocket via Getty

HSBC (HSBA.L) missed profit forecasts in the third quarter, as interim CEO Noel Quinn vowed to “remodel” the bank in the face of “a challenging environment.”

HSBC on Monday reported pre-tax profits of $5.3bn (£4.13bn) for the third quarter of 2019, 6% lower than analysts had expected and down from $6.1bn in the second quarter. Net profit fell by 14% to $2.9bn, missing analysts’ forecasts too.

HBSC said the miss was due to “reduced client activity resulting from ongoing economic uncertainty.”

Banks and corporates have been suffering from the ongoing trade conflict between the US and China. Falling interest rates have also hurt bank profitability and HSBC is particularly exposed to ongoing protests in Hong Kong, although it said performance in the market held up well.

Revenue at the bank came in at $13.2bn in the third quarter, 4% below analyst forecasts and down from $13.8bn in the second quarter of the year.

Shares fell 3.4% in early trade in London.

‘Not acceptable’

Interim CEO Noel Quinn blamed “a challenging environment” but admitted that “in some parts, performance was not acceptable.” He highlighted poor performance in Europe, the US, and the investment and commercial bank in the UK.

“Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth,” Quinn, who took over from John Flint in August, said. “We are therefore accelerating plans to remodel them, and move capital into higher growth and return opportunities.”

The bank said it would “act to rebalance our capital away from low-return businesses and adjust the cost base in line with the actions we take.”

READ MORE: Barclays counts cost of PPI and warns outlook 'more challenging'

HSBC did not outline specifics of its restructuring plans but Quinn’s comments are likely to fuel fears of job cuts. The Financial Times has reported at the start of the month the bank is considering cutting up to 10,000 jobs as part of a sweeping overhaul.

“This morning’s Q3 numbers appear to support the case for radical action in culling areas where the bank is underperforming, with the US and Europe likely to bear the brunt,” said Michael Hewson, chief market analyst at CMC

HSBC said on Monday: “We are reviewing our plans and expect to update the market at (or before) our FY19 results in February 2020.”

HSBC warned it could take “significant charges” related to the restructure in the next few quarters that would hit profitability. Revenue may also suffer if global market conditions continue to be weak. As a result, the bank does not expect to hit its target of return on tangible equity of 11% by 2020.

HSBC becomes the third UK bank in the last week to warn of difficult market conditions. Barclays (BARC.L) warned of a “more challenging outlook” on Friday and RBS (RBS.L) blamed poor performance at its markets business for an unexpected loss.

READ MORE: PPI claims surge and market ructions push RBS to a loss