HSBC has been weathering the world's economy and sailing on trade winds both fair and stormy for more than 150 years and, as such, knows a good deal about adapting to current conditions and staying nimble.
Tuesday's restructuring announcement is being seen by analysts as the latest episode in the bank's long evolution, which stretches back to 1865 when it first opened its doors in Hong Kong. Since that time, HSBC has always seen itself as a “local bank serving international needs” and indeed, for decades adopted the slogan “the world's local bank” to describe itself.
But by 2018, surging internet connectivity, coupled with the rapid development of digital banking, meant branch closures for all the major banks, as the whole concept of a bricks-and-mortar local bank began to dissolve.
As such, HSBC adapted and found a new slogan: “Together We Thrive”, which in the UK gained some notoriety as a perceived subtle stand against Brexit. Nonetheless, the “Together We Thrive” narrative was deemed a success, as it connected the bank with its 41 million personal, wealth and corporate customers in 60 countries.
However, in recent years, one of HSBC's major shareholders, the Chinese insurance company Ping An, has been pushing the bank to hive off its Asian business, a campaign which culminated in vote at the HSBC annual general meeting in 2023.
While Ping An and Hong Kong-based shareholders lost the vote to spin-off the profitable Asian business, it did resonate at board level. The much-anticipated restructuring announced on Tuesday would seem to be HSBC's adaptation to it – thriving, but as two separate geographical units: one covering the west (UK, Europe and the Americas) and one covering the east (Asia and the Middle East).
Russ Mould, investment director at AJ Bell, told The National that this new structure may be partly designed to lay the separation issue “to rest for good” and “show that HSBC is positioned to maximise the growth potential of Asia, the Middle East and emerging markets”.
The restructuring does reflect the “differing pockets of opportunities” HSBC has identified, said Richard Hunter, head of markets with Interactive Investor, while keeping the bank together.
“Geographical and business diversification have long been a mainstay for the UK banks – HSBC and Barclays being the most pertinent examples – which allows for regions and business lines to pick up the slack as economic fortunes and trends vary across the globe,” Mr Hunter told The National.
'Next on the chopping block?'
The changes at HSBC are the most significant at the lender for more than a decade and new chief executive, Georges Elhedery, is adamant the new structure “will result in a simpler, more dynamic, and agile organisation as we focus on executing against our strategic priorities”.
For Michael Makdad, senior equity analyst at Morningstar, HSBC's global operations were “too complex and too sprawling geographically”.
“This reorganisation to simplify the business, and separate Hong Kong and the UK into their own businesses, should be positive. It may also help answer the concerns of shareholders in Asia, who argued a few years ago that such a separation could improve returns,” he added.
However, some analysts felt the reorganisation was all very well, but failed to see how it could turn HSBC's fortunes around as the world's central banks move to lower interest rates. In addition, others were speculating the restructuring, far from laying the separation issue to rest, could be a prelude to more formal spin-offs and separate stock market listings.
“The announcement today is just moving around different parts of the group, with no change to the big picture,” said Benjamin Toms, an analyst at RBC Capital Markets. “The real question that the market is waiting to hear about, given that the bank is searching to cut costs to offset top-line pressure, is which parts of that group could be next on the chopping block, and how much will this restructuring cost the bank?”
Those restructuring costs could also pave the way for significant job cuts, a path taken by HSBC's rival Citigroup earlier this year.
Citi has plans to slash 20,000 jobs, or more than 10 per cent of its workforce and its chief executive, Jane Fraser, told investors the restructuring should save $1 billion a year. But former Bank of England economist, Stuart Cole, thinks the task facing HSBC is even greater, as "its lines of business were even more geographically diverse".
"My hunch is that this will be a long process and HSBC will end up undergoing a bigger restructuring than it is currently envisaging: the world is continuing to fragment, both politically and economically, and I think the journey HSBC is now on will require more difficult decisions to be made going forward," he told The National. More details of HSBC's restructuring are expected to emerge when the lender reports its third quarter numbers at the end of October.
