HSBC drops 2020 profit target, reports sharp fall in earnings

HSBC Holdings dropped its 2020 profit target and reported a sharp fall in earnings. It also warned of a costly restructuring programme and negative effect on its revenue.

The bank posted pre-tax profit of $4.8 billion for the third quarter on Monday, compared with the $5.3 billion average of analysts’ forecasts.

Europe’s biggest bank by assets has been looking to step up cost-cutting in a gloomy business environment brought about by an escalating Sino-US trade war, Britain’s protracted withdrawal from the European Union, an easing monetary policy cycle, and unrest in its key Hong Kong market.

The interim Chief Executive Noel Quinn seeks to tackle its problems head-on in his bid for the full-time role.

Quinn branded the lender’s sluggish performance in Europe and the United States as “not acceptable”, but said investors may have to wait until early next year to hear his full plans to “remodel” Europe’s biggest bank by assets.

The latest HSBC restructuring comes in a gloomy business environment, including an escalating Sino-US trade war, Britain’s protracted withdrawal from the European Union, an easing monetary policy cycle, and unrest in Hong Kong.

“Overall a poor set of results,” said analyst Edward Firth at broker KBW. “But the good news is that this performance looks set to finally goad the management into taking some of the actions to address underperforming businesses that we have been awaiting.”

The bank’s shares fell 3% in London, against a 0.5% dip in the STOXX European banks index.

The earnings update is HSBC’s first under Quinn, and is widely seen by shareholders and insiders as a report card on his audition for the CEO role full-time.

“Our previous plans are no longer sufficient to improve performance for these businesses, given the softer outlook for revenue growth,” Quinn said of the bank’s US and European operations. As a result of a “more challenging” revenue outlook compared with the first half of the year, HSBC said it did not expect to meet its return on tangible equity (RoTE) target of 11% in 2020.

A veteran of the bank since 1987, Quinn, 57, has made it clear he is keen to secure the permanent appointment of CEO from Chairman Mark Tucker, who said in August the search to replace the ousted John Flint would take six to 12 months.

Reuters