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* HSBC annual profit falls 34%, but not as bad as expected
* Bank trims dividends, cuts returns target to 10%
* Lender plans to cut more jobs and costs
* Plans $6 bln additional investments in Asia over five
years
(Updates shares, adds details)
By Alun John and Lawrence White
HONG KONG/LONDON, Feb 23 (Reuters) - HSBC Holdings PLC
lowered its long-term profitability target on Tuesday
and unveiled a revised strategy focused mainly on wealth
management in Asia after the COVID-19 shock saw its annual
profit drop sharply.
Citing the low interest rate environment and tough market
conditions, HSBC ditched its goal of achieving a
return on tangible equity of 10 to 12%, and said instead it will
aim for 10% over the medium term.
The move by Europe's biggest bank underlined the tough
outlook for the banking sector as low interest rates worldwide
curb profits, even as a global markets rally boosted the
prospects for the wealth management business.
The margin pressure and mounting losses in Europe have
pushed HSBC to redouble its focus on Asia which provided a
dominant share of the bank's profits in 2020.
"The big structural shift that’s gone on since we set out
the plan last February has really been the shift in interest
rates down toward zero in most markets that we do business in,"
Ewen Stevenson, HSBC's group chief financial officer, told
Reuters.
"If interest rates were 100 basis points higher today across
the board it would improve our returns by 3 percentage points."
The bank said it would pay a dividend of $0.15 a share in
cash, the first payout announced since October 2019, after the
Bank of England blocked all big lenders from payouts in 2020 to
conserve capital.
However, it said it would stop the previous practice of
paying a quarterly dividend, and target a payout ratio of
between 40% and 55% of reported earnings per ordinary share from
2022 onwards, well below the level in recent years.
HSBC also set out plans to reduce its office space globally
by 40% over the long term as part of its cost-cutting drive, in
a further sign the pandemic could mean permanent changes to
working patterns.
The bank gave no update on an overall plan to cut around
35,000 jobs it unveiled a year ago, but said around a third of
the 7,000 jobs in its finance department would go as it invests
in technology.
The announcement came as HSBC reported profit before tax of
$8.78 billion for 2020, down 34% from a year earlier but just
above the $8.33 billion average of analysts' estimates compiled
by the bank.
HSBC's shares fell 2% in London, against a 1% drop in the
FTSE 350 banks index as investors considered the
bank's dividend cut and modest strategic ambitions.
"It's hard to have high ambitions in this climate, or at
least dangerous to declare them if they exist," said Hugh Young,
managing director at Aberdeen Standard, HSBC's ninth-largest
shareholder.
ASIA FOCUS, SHRINKING ELSEWHERE
HSBC said that its growth in Asia for the next five years
will be driven by around $6 billion of additional investment in
its wealth management and international wholesale business.
Profit from the bank's wealth management and personal
banking division in Asia was $5 billion in 2020, but its cash
cow Hong Kong accounted for almost all of this, despite its
controversial decision to assist Hong Kong police with
investigations into pro-democracy activists.
Chief Executive Noel Quinn said he could shift some
executives, who report directly to him, from London and other
locations to the Asian financial hub, including global business
heads, but the decisions have not been finalised.
Elsewhere in the world, HSBC said it is in talks with
potential buyers for its troubled retail banking unit in France,
which it has been trying to dispose of for over a year, but no
deal has been confirmed.
It said it expected to make a loss on the sale given the
business's underlying performance.
The bank also said it is "exploring organic and inorganic
options" for its U.S. retail banking franchise, suggesting it is
trying to sell the unit where it has already closed 80 branches
in the last year.
Reuters, and others, have reported the bank is trying to
withdraw from U.S. retail banking.
The bank is however confident of restoring profitability in
its Mexico business, Quinn told Reuters.
(Reporting by Alun John and Lawrence White, additional
reporting by Iain Withers; editing by Shri Navaratnam and Susan
Fenton)
