HSBC scales back U.S. retail expansion amid another global restructuring

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HSBC is overhauling its U.S. business operations again amid pressure to increase shareholder returns.

Less than a year after rolling out plans to open as many as 50 retail branches in new and existing markets in the United States — including several offices in low- to moderate-income communities — executives of the London-based financial company now say it will embark on a “major cost and consolidation program” in the U.S. that not only shrinks the retail branch network by roughly 30%, or about 80 branches, but also trims staff by 15% and turns the bank’s focus back to serving “globally mobile and affluent clients.”

“We'll reposition HSBC USA as an international client-focused corporate bank, anchored in commercial banking and global banking, with a focused retail offering for international and affluent clients,” interim Chief Executive Noel Quinn said on a conference call with analysts Tuesday. “This will be a fundamentally different business to today's.”

HSBC U.S. loan portfolio, 2015-2019

The changes are the latest in a series of corporate restructuring plans issued by HSBC, which now plans to eliminate 35,000 jobs and $100 billion in assets over the next three years as it reduces capital and costs in lower-performing markets in favor of investments in higher-growth markets such as Asia. At the same time, it is suspending share buybacks for 2020 and 2021 and moving forward with digital products.

To enact the changes, the bank expects to incur about $6 billion in restructuring charges.

Who will ultimately see HSBC through the next round of restructuring remains to be seen. Former CEO John Flint left the company in August 2019. That same month, Quinn, a former regional head of commercial banking for the Asia-Pacific market, was appointed to the role on a temporary basis.

HSBC has said the timetable to announce Flint’s successor has not changed, which means it could be another six months before the bank is ready to announce a new permanent leader.

On Tuesday, executives from HSBC USA Bank, the U.S. arm of HSBC Holdings, were not made available to talk about how the realignment would affect the bank’s U.S. strategy.

It had 224 U.S. branches as of Dec. 31 and said it took a $19 million fourth-quarter charge in connection with its decision to close 17 branches. It also took $33 million in severance-related charges.

The bank did not directly say whether it will suspend the 50-branch expansion initiative announced in June 2019. According to a spokesman, 13 branches opened in 2019, of which 11 were on the West Coast. The remaining two opened in Silver Spring, Md., and Depew, N.Y., near Buffalo, where HSBC has approximately 3,000 employees.

The bank will continue to open new branches, primarily on the West Coast, to better serve the "large population of Asian internationals," the spokesman said in an email. Of 10 new offices slated to open in 2020, seven are on the West Coast, he said. The bank is seeking regulatory permission to open a second branch in the Buffalo market, but officials have not released information about when that office will open or whether there are more on the way.

It also would not say how many new jobs have been filled as part of the branch expansion plan. Originally, the bank said more than 300 workers would be hired as the branch network grew.

During the conference call to discuss fourth-quarter results, analysts had several questions about the bank’s decision to halt share buybacks. In a research note, London-based JP Morgan Securities analyst Raul Sinha said the bank’s cost-cutting plan is “a step in the right direction, but unlikely to drive upward of the shares.”

Alastair Ryan of Bank of America Merrill Lynch wrote that the combination of “more capital and less distribution” suggests upward pressure to hold, which goes against other banks' “increasing confidence in their capital needs.”

Ed Firth of Keefe, Bruyette & Woods said in a note to investors that HSBC’s cost-cutting plan “includes some near-term disappointment.” He said the lack of a permanent CEO to hold accountable for the numbers makes it “tough to give much credibility to [the] numbers well beyond rational horizon.”

“The fundamental flaw is that there is no individual responsible for delivering it, and with no permanent CEO promised before August … one is left feeling distinctly underwhelmed,” he wrote.

Quinn told analysts that the bank considered “a number of options” regarding U.S. retail banking, including exiting it altogether. “But a retail deposit base in the U.S. provides an important source of stable liquidity for our wholesale banking and global transaction banking activities,” he said.

HSBC entered the U.S. in 1980 when it acquired Marine Midland Bank in Buffalo. At the time, Marine Midland had several hundred branches across New York state and held close to $20 billion in assets.

The bank has shrunk its retail network before. In 2012, it sold its entire upstate New York franchise to First Niagara Financial Group in Buffalo, which was ultimately sold to KeyCorp in 2016.

Laura Alix contributed to this article.

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