Last checked at 
* Q3 pretax profit at $3.1 bln versus $2.1 bln estimate
* Bad loan losses seen at lower end of $8-$13 bln forecast
* Says dividend payouts to resume 'conservatively' when
possible
* CFO says to charge for basic banking services in some
markets
(Updates shares, adds comment)
By Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON, Oct 27 (Reuters) - HSBC Holdings PLC
on Tuesday 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.
Underscoring its challenges, the bank's revenues fell 11%
compared with the third quarter last year to $11.9 billion.
The 35% slide in pre-tax profit to $3.1 billion, however,
was not as deep as expected, better than a consensus estimate of
$2.07 billion as HSBC flagged an easing in bad loan provisions.
HSBC now expects losses from bad loans to be at the lower
end of the $8 billion to $13 billion range it set out earlier
this year.
Government support schemes such as loans and wage support
for workers have helped to genuinely mitigate some credit losses
rather than merely defer them to next year, CFO Stevenson told
Reuters.
"What these schemes have done in particular is buy time for
a lot of the corporate sector to restructure themselves, and go
out and raise debt and equity finance," he said.
RESTRUCTURING REVVED UP
Faced with fewer options to bolster revenue growth,
Asia-focused HSBC has been looking to reduce costs globally and
in June resumed plans to cut around 35,000 jobs it had put on
ice after the coronavirus outbreak.
The bank has no immediate plans to cut even more jobs,
Stevenson told Reuters, but that could happen as its
transformation plans continue.
HSBC said on Tuesday it plans to reduce annual costs to
below $31 billion by 2022, a more ambitious target than it set
out in February and well below the operating expenses of $42.3
billion it reported in 2019.
It will also accelerate the transformation of its U.S.
business, where it has long struggled to compete with much
bigger local players, and will provide an update at its 2020
full-year results in February.
HSBC, which in common with other British lenders stopped
paying dividends earlier this year at the request of regulators,
said it would communicate a revised dividend policy - also in
February. Analysts and investors fear the lender could cut
payouts in the long run.
"When we start paying distributions again, we'll start
conservatively and build from there," Stevenson told investors
on a conference call.
(Reporting by Sumeet Chatterjee in Hong Kong and Lawrence White
in London; Additional reporting by Scott Murdoch in Hong Kong;
editing by Edwina Gibbs and Jason Neely)
