HSBC Focuses on Restructuring Amid Deregulation and Trade Headwinds
HSBC investors support management's efforts to downsize parts of its investment banking operations, despite the potential boost to capital markets from the Trump administration's deregulation agenda. Four shareholders, including two of the 20 largest, commend the decision to eliminate HSBC's mergers and equity capital markets teams in the Americas and Europe, aligning with the bank's focus on its core Asian markets.
HSBC, once a global giant, has been gradually reducing its global footprint and exiting unprofitable businesses over the past decade. Amidst concerns about the impact of U.S. tariffs on trade finance providers, investors are urging CEO George Elhedery to prioritize Asian economies with promising regional trade prospects that may be less susceptible to global trade disruptions.
The bank is expected to disclose further details of its strategic vision, including cost savings from restructuring, on February 21. Unconfirmed reports estimate savings in the range of £1.2 billion to £3 billion ($1.5-$3.8 billion), potentially achieved through cuts to management roles and units related to those already eliminated.
Despite the downsizing, HSBC's London-listed shares have increased by 11.5% year-to-date and 20% in 2024. Investors applaud the meticulous analysis of each business to achieve a sustainable return on tangible equity (ROTE) of approximately 16%. Notably, HSBC's ROTE of 19.3% in Q1-Q3 2024 trails significantly behind Morgan Stanley's 18.8% ROTE, which trades at a price-to-book multiple of 2.16, while HSBC trades at 1.04.
Analysts forecast HSBC's full-year profit to remain stable at $31.6 billion, slightly higher than the $30.3 billion reported in 2023.
Staff in affected businesses express concerns about job stability and morale. However, experts believe that the consolidation and growth expected in investment banking due to deregulation may mitigate the impact of staff reductions.