HSBC to revamp business model

HSBC Holdings signalled it would embark on a pandemic-induced overhaul of its business model, seeking to flip its main source of income from interest rate to fee-based businesses.

Reporting a 35% tumble in quarterly profit, Europe’s largest bank also accelerated plans to shrink in size and will slash costs further than previously suggested.

The planned changes to its business model mark one of the biggest shifts in strategy to date from HSBC, which has long touted its ability to generate interest income from its more than $1.5 trillion in customer deposits.

But with interest rates worldwide now rock-bottom and even turning negative, the bank is struggling to charge more for loans to borrowers than it pays out to depositors and it warned that net interest income would remain under pressure.

In potentially seismic shift for the banking industry, HSBC also said it could start charging for products such as current accounts that customers in some markets such as Britain expect to be free.

“We will have to look at charging for basic banking services in some markets, because a large number of our customers in this environment will be losing us money,” Chief Financial Officer Ewen Stevenson told Reuters.

That could prove a tough pill to swallow in some markets, industry experts said.

“It will need to be done carefully to not damage the trust of the brand or get customers to switch, especially in countries where competitors offer the service for no charge,” said Sudeepto Mukherjee, senior vice president, financial services, at consulting firm Publicis Sapient.

The restructuring measures helped HSBC’s shares climb more than 5%, although they have still lost nearly half their value for the year to date.

Reuters