By Selena Li and Sumeet Chatterjee
HONG KONG (Reuters) – HSBC expects to incur $1.8 billion in expenses by the end of next year related to an overhaul initiated by its new CEO to cut long-term costs and boost profits while navigating diverging interest rate policies and geopolitical turmoil.
The Asia-focused lender booked earnings for 2024 that beat market expectations, announced a new $2 billion share buyback which it plans to complete before earnings filing in April, and retained forecast for a key performance target for three years.
A costly overhaul at a time when outlook for HSBC is muddied by different paths for global interest rate policies and rising geopolitical and economic uncertainties confronts CEO Georges Elhedery with a difficult balancing in the near-term.
Despite the profit beat and the buyback announcement, the bank’s shares posted muted gains on Wednesday. They closed up 0.3% in Hong Kong after having touched a new high since February 2011, and were down 0.3% in London.
Citigroup analysts said in a research note restructuring-related charges that HSBC expects to incur were heavier than expected, and could yet be larger still, thereby limiting scope for future share buybacks.
HSBC reported a 6.6% rise in 2024 pre-tax profit to $32.3 billion, moderately ahead of analysts average estimate of $31.7 billion, as income withstood the impact of falling interest rates.
The bank is aiming for about $300 million in cost reduction in 2025, with a commitment to an annualised reduction of $1.5 billion in cost base by the end of 2026, it said in its financial statement.
The move will, however, result in severance and other up-front expenses totalling $1.8 billion by end of next year.
“We do expect some of the savings to come from various areas of the bank, both in the business functions where we had duplications … or from the duplicated roles of the wholesale businesses that we brought together,” Elhedery said.
He said that a large part of the cost related to its biggest investment banking retrenchment in decades will be incurred this year.
HSBC said it aimed for a mid-teens percentage return on average tangible equity, a key performance target, for each year from 2025 to 2027, despite a volatile rate outlook.
Elhedery became HSBC CEO in September and has since been working to boost returns and intensify the London-headquartered bank’s focus on Asia, where it earns most of its revenues and profits.
COST-CUTTING MEASURES
HSBC’s headcount fell 3% last year and its staff bonus pool hardly changed from 2023 as Elhedery sharpened focus on costs, the bank also said on Wednesday.
