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A disappointing 2014 for HSBC has CEO Stuart Gulliver considering "extreme" changes at its U.S. bank and other struggling units, which he said are a drag on return on equity.
February 23 -
More than two years after agreeing to pay a massive sum to settle charges oflaundering billions of dollars for drug gangs and terrorists, HSBC still has not properly reformed its internal controls, the settlement monitor reported. The bank also plans to remove a key U.S. executive after he tried to interfere with internal auditors.
April 1 -
The German bank's massive strategic overhaul will include cutting key businesses and leaving 10 countries, but it plans to invest in the U.S. despite all the regulatory troubles it has had here.
April 27
HSBC's North American business again lagged behind the company's core operations in the latest quarter, as executives in London mull changes to it and other underperforming regional units.
The North American operation's adjusted before-tax profit a metric that removes currency-exchange swings and some one-off items fell 12% in the first quarter from a year earlier, to $472 million.
That drop-off occurred despite improvements in credit quality and better retail and wealth management profits.
HSBC executives are considering ways to turn around its North American business, which is largely in the United States. In February, HSBC Chief Executive Stuart Gulliver
HSBC plans to unveil a strategy for these underperforming regions at a meeting on June 9. On a conference call with members of the news media Tuesday, Gulliver said that the forthcoming fixes will involve restructuring of the North American business, rather than a drastic pullback.
Having a U.S. presence is crucial for serving U.S. companies abroad, Gulliver said.
"There is substantial revenue from U.S. companies that gets booked in places like China, Saudi Arabia, Mexico, places like that, [which] wouldn't come about if we were not in the United States," he said.
Chief Financial Officer Iain Mackay said that the North American operation provides crucial access to U.S. dollar clearing, which supports HSBC's businesses worldwide. The unit "is a business to which our commitment is absolute," Mackay said.
Profits rose in HSBC's core markets. In Asia, which has long been the company's most lucrative region, adjusted before-tax profit grew 6%, to $3.9 billion. It grew 15% in Europe, to $1.8 billion. Overall, the company's adjusted pretax profit rose 5% in the first quarter, to $6.9 billion.
Yet as in North America, other HSBC regions struggled with growing profit. Adjusted pretax profit dropped 10% in Latin American, to $231 million, and 7% in the Middle East, to $458 million.
One of the North American unit's problems is that it carries an inordinately large amount of risk-weighted assets for the amount of profit it generates, compared with the company's other regions.
It held $224.4 billion in risk-weighted assets as of March 31. That was 46% as much as the Asian unit held, yet North America generated just 12% as much adjusted pretax profit.
The North American business' return on average risk-weighted assets was 0.9%, the lowest of the five regions. Asia generated 3.5%, the Middle East 2.9%, Europe 1.7% and Latin America 1.1%.
HSBC Bank U.S.A., in McLean, Va., is the company's main North American subsidiary, with $179 billion in assets as of the end of 2014. It has 233 U.S. branches, mainly in New York, elsewhere in the Northeast and California.
On the call with reporters Tuesday, Gulliver said he is encouraged by the growth of the U.S. commercial banking division. He said the retail wealth management business is a "struggle," but that it provides deposits for the company to use elsewhere.
"Our retail banking [and] wealth management business is around breakeven, but it also actually provides dollar funding to some other of our operations elsewhere in the world," he said.
