(Oct 23): HSBC Holdings plc’s new chief executive officer just unveiled the biggest overhaul of the company in at least a decade, but it was missing some key details for employees and investors.
There was, for instance, no sense of how many jobs might be on the chopping block as the lender merged two of its largest businesses and axed some of its longtime regional divisions. Shareholders were also left wondering how much money the bank would even save after it implements the changes.
Some employees found it difficult to understand where they fit within the company’s new organisational structure, according to half a dozen people familiar with the matter. Others felt it was unclear if the bank will still be offering many of its core services in every market.
“These moves seem to make sense,” said Ed Firth, a London-based analyst at Keefe Bruyette & Woods. “However, it remains to be seen whether the restructuring charges or cost savings will be that material to the bank.”
HSBC said it wouldn’t be providing further details until it announces full-year results in February. Shares of the company were little changed as investors were left with questions about the financial impact the restructuring would ultimately have.
It all adds to a sense that Georges Elhedery, HSBC’s Lebanon-born and French-educated new boss, is a man in a hurry. In just six weeks, he has already reshuffled his senior management twice, kicked off the sales of businesses in South Africa, Malta, and France, signed a key brand partnership with one of the world’s biggest airlines, while also plotting a corporate overhaul.
“This is how we will fast forward our plans,” Elhedery said in a statement on Tuesday. “The new structure will result in a simpler, more dynamic, and agile organisation.”
‘Better focus’
To be sure, it often takes months to initiate restructurings at companies that are the size of HSBC, which has more than 200,000 employees around the world. Citigroup Inc, for instance, announced similar moves last year — and it’s still in the process of shedding 20,000 roles as part of its own revamp.
But Elhedery, 50, who succeeded Noel Quinn as CEO on Sept 2, has repeatedly vowed to cut costs and simplify the structure of his 159-year-old bank. The restructuring has been presented as an answer to persistent investor concerns over how HSBC can survive and thrive in a world of falling interest rates where increasingly large regional competitors and growing ranks of fintechs keep chipping away at its customer base.
“The changes that we are announcing today will make it easier for our colleagues to serve our customers and drive the future success of the group,” Elhedery said in the statement.
The announced changes include the combination of the HSBC’s global commercial and institutional banking operations under Michael Roberts and the creation of a new international wealth and premier banking business that will be overseen by Barry O’Byrne.
As part of a geographic shake-up, HSBC will have an Eastern regional unit including Asia Pacific and the Middle East, and a Western market that includes its non-ring-fenced bank in the UK, Europe and the Americas. Hong Kong and UK will be standalone units.
In the process, several senior executives have been left by the wayside, shrinking the size of the lender’s top management team, while handing those left with more power to run their businesses.
Elhedery held a firmwide call on Tuesday to address some employee questions about the new structure, but he didn’t add much information beyond what had been publicly shared by the bank earlier in the day, some of the people familiar with the matter said, asking not to be identified discussing non-public information.
‘Unknown, important’
One thing Elhedery made clear on Tuesday was that HSBC’s strategic pivot to Asia remains unchanged. But his latest moves show that the way the CEO goes about achieving that strategy could be upended.
For instance, merging commercial and investment banking, an idea long regarded as too risky by some of Elhedery’s predecessors, is designed to push bankers in rival divisions to focus more on customers than on who gets to serve them.
At the same time, stripping out Hong Kong and the UK as standalone businesses will hand local managers more authority to run the bank’s two main profit centres rather than having to answer to executives often several thousand miles away.
“By making these changes, we can better focus on increasing leadership and market share in those businesses which have clear competitive advantage and the greatest opportunities to grow,” Elhedery said in the statement.
What remains to be seen is how much all this will cost.
Analysts at UBS Group AG said that potential restructuring charges to be taken by the bank were “unknown and important.”
While executives might give some update with its third-quarter results on Oct 29, the company said Tuesday it wasn’t planning to offer further details until the announcement of full-year figures in February. That would leave several months of potential uncertainty hanging over the business.
There are also going to be questions about the future of operations not mentioned in the restructuring statement. For instance, the UBS analysts pointed out that the bank made no mention of its Mexican or Australian units, or how the insurance business will fit into its new international wealth arm.
An HSBC spokesperson declined to comment for this story.
Future shape
HSBC last year won a yearlong battle against one of its largest shareholders, which was calling for the bank to consider a break up that would have seen it spin off its Asian operations. Arguing against Ping An Insurance Group Co’s campaign, HSBC made the point that such a separation would be both enormously expensive and risky.
With his new Eastern division, though, Elhedery has effectively created just the type of standalone Asian business that Ping An was pressuring the company to consider — albeit without the separate listing the Chinese insurer had sought.
The UK, too, now looks even more like a distinct business than it did before, with HSBC UK housing all of the lender’s domestic commercial banking operations. This could also raise questions about the long-term future of the business. The company has faced speculation in the past about a possible spin-out of the unit.
“We will have to wait until third-quarter results and beyond to have answers,” said Joseph Dickerson, an analyst at Jefferies.
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