* Q3 pretax profit at $3.1 bln beat $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 will have to look at charging for basic services
in
some markets
(Adds detail on possible business model changes, updates
shares)
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, targeted deeper
cost cuts, and said it will resume conservative dividend
payments when able.
The planned business model changes 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
net interest income would remain under pressure.
Earlier this year the bank announced it would merge its
wealth and personal banking business in a bid to cross-sell more
lucrative products across a wider section of its huge customer
base.
Now the bank is signalling it may go further and start
charging for much more basic products such as standard current
accounts that customers in some markets such as Britain expect
to be free.
It will also look at how it can bring in more fee income
from corporate customers, having done well helping clients raise
money through bond and equity financing during the COVID-19
crisis.
"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 bank said it would set out further details on increasing
fee income when it reports full-year results in February.
The announcement of the restructuring plans helped HSBC
shares climb more than 6.5%, although they have still lost
nearly half their value year to date.
Underscoring its challenges, the bank's third-quarter
revenue fell to $11.9 billion, down 11% from a year earlier.
Its 35% slide in pretax profit to $3.1 billion beat a
consensus estimate of $2.07 billion as HSBC flagged an easing in
bad loan provisions.
"While the outlook for impairments still remains highly
uncertain... HSBC delivered strong third-quarter results in
overall terms and the upbeat outlook commentary in terms of
strategy execution is reassuring," said John Cronin, an analyst
at Dublin-based brokerage Goodbody.
HSBC now expects losses from bad loans to be at the lower
end of the $8-$13 billion range it set out earlier this year.
"There are encouraging signs that the credit assumptions we
have got are holding up, the government support we are seeing
for the corporate sector has bought them time," Stevenson told
investors on a conference call.
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 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 players, and will provide an update at its 2020 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 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 said on the
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)
HSBC Holdings (HSBA)
