(Alliance News) - FTSE 100 banking giant HSBC Holdings PLC reported Tuesday a double digit drop in annual profit on a goodwill impairment, despite solid revenue growth, as the group starts to make significant changes to its structure.
For 2019, HSBC's pretax profit dropped by 33% to USD13.34 billion from USD19.89 billion the year before, even as revenue rose by 4.3% to USD56.10 billion from USD53.78 billion.
The reported pretax profit fell way short of market expectations. Analyst consensus had HSBC achieving pretax profit of USD20.03 billion for the year.
The group profit performance was hurt by a total goodwill impairment of USD7.35 billion, with USD4.0 billion coming from HSBC's Global Banking & Markets division, and USD2.5 billion from Commercial Banking, reflecting lower long-term economic growth assumptions, and the planned reshaping of GB&M.
HSBC's return on tangible equity stood at 8.4%, down 20 basis points from 8.6% the prior year.
Meanwhile, adjusted jaws for 2019 was at positive 3.1%, swinging from a negative 1.2% in 2018 due to HSBC's improved cost discipline.
The jaws ratio - a key financial performance indicator - is the difference between the percentage growth in income and the percentage growth in expenses.
The CET1 solvency ratio for HSBC in 2018 stood at 14.7%.
HSBC kept its dividend per share for the year in-line at USD0.51.
Looking ahead, HSBC said the coronavirus outbreak has created significant disruption for its suppliers and customers, and could lead to a reduction in revenue from lower lending and transaction volumes, as well as credit losses.
In addition, HSBC said it plans to sustain its dividend and maintain a CET1 ratio between 14% and 15%, expecting to be at its top end by the end of 2021.
Finally HSBC said it plans to simplify its group structure, which involves the consolidation of the back and middle office to a single model for Commercial Banking and Global Banking, merging Retail Banking and Wealth Management & Global Private Banking into a new Wealth & Personal Banking division, and reducing geographic reports from seven to four at group executive level.
To achieve this, the bank said it expect to incur restructuring costs of USD6 billion and asset disposal costs of USD1.2 billion for the period ending 2022.
"The group's 2019 performance was resilient, however, parts of our business are not delivering acceptable returns. We are therefore outlining a revised plan to increase returns for investors, create the capacity for future investment, and build a platform for sustainable growth. We have already begun to implement this plan, which my management team and I are committed to executing at pace," said Chief Executive Noel Quinn.
Shares in HSBC Holdings were down 2.9% at HKD57.65 in Hong Kong trading.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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