Profits in Free Fall
HSBC is about to cut more than 35,000 jobs and around $100 Billion in assets. It’s not going to end there either. They have yet to announce branch closures around the world. It’s what interim CEO Noel Quinn calls, “one of the deepest restructuring and simplification programs in the bank’s history.”
Indeed it is. After all, HSBC is only the 5th largest bank in the world. Headquartered in London, England, with a massive global workforce of over 230,000, the bank is shedding 15% of its workforce in addition to closing its doors across 60 countries.
The reason for this: HSBC’s profits are in a free fall. Their net profit was down an astonishing 53% in 2019. While the job cuts represent big news, the $100 Billion asset purge may or may not be that significant in the big picture. If anything, it will dent HSBC’s total assets of $2.7 Trillion.
HSBC is shuttering 30% of its bank branches in the US, around 80 branches. It’s decided to focus more of its efforts on its most profitable regions, the Middle East and Asia, where 45% of its customer accounts are situated.
World Events Affecting HSBC’s Bottom Line
Not surprisingly, HSBC’s profits in 2019 were hurt by the low-interest rate environment. It cost the bank around -$4 Billion. It’s important to bear in mind that HSBC is not the only bank impacted by low interest-rates. Smaller banks were too. It’s just that HSBC, being the bigger fish that it is, tends to steal the spotlight.
But interest rates were not the only factor. Socio-political events, namely, the Hong Kong protests, Brexit, and the coronavirus have all conspired to take a bit out of HSBC’s bottom line.
The Hong Kong protests have directly led to HSBC having to shut down branches in its biggest area of business. 35% of the bank’s customer accounts are in Hong Kong. Two of the closed branches were shut down when protests erupted in the area. Another branch was closed because it was believed to have funded protesters somehow.
Aside from this, HSBC executives are also keeping a very close eye on the spread of the coronavirus which is infecting so many in HSBC’s Asian stronghold. HSBC CFO Ewen Stevenson told media outlets recently that if the outbreak continues and is not contained or mitigated in the next six weeks or less, there could be even graver consequences for the bank’s 2020 outlook.
Over the last decade, 486 US banks have collapsed. These were smaller banks, not unlike HSBC. But these were also local community banks that served average American families and neighborhood businesses.
We know that low interest rates can place stress on a bank’s capacity to make profit. We also know that the Federal Reserve may not raise interest rates anytime soon. In fact, they may even be forced to lower them given our current market circumstances.
But if you take a look at all the other factors that affected HSBC, many of the outcomes were more or less unpredictable. Among the US banks that have collapsed to date, a number of them might have fallen as a result of outcomes they weren’t anticipating.
In light of COVID-19’s potential impact on the economy and the response of central banks across the globe, uncertainties abound, to say the least. Now might be a prudent time to hedge, and it’s relatively easy to do. If you haven’t downloaded our Bank Failure Survival Guide yet, we suggest you do so. To date, over 48 banks fail each year on average. Our book can tell you what to do to prevent your wealth from being negatively impacted by such an event.
Remember, banking failures never happen to anyone, until they actually do.