British multinational financial institution HSBC has decided to realign its business model to move away from its initial interest-based revenue model to contemporary fee-based businesses.
The bank is also expected to go through a larger cost-cutting and shrinking process than estimated earlier.
HSBC revealed its new strategic shift after it reported a less than expected 35 percent quarterly profit and hinted at easing its provisions for bad loans citing a better financial outlook in its main regions.
The proposed shift is one of the largest long-term strategic shifts executed to date by Europe’s biggest bank which has always boasted of its capability to generate interest income from its more than $1.5 trillion in customer deposits.
In the current financial environment where worldwide interest rates are at rock-bottom and are even turning into a negative, the bank is finding it hard to charge a higher interest rate for loans to borrowers than what it pays out to depositors.
Losses on the Horizon
HSBC which has mostly focused its operations on the Asian market is expected to lose less ($8 billion) than the previous estimations ($13 billion) from the bad loans.
“This latest guidance, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, assumes that the likelihood of further significant deterioration in the current economic outlook is low,” the bank stated.
Restructuring
Very few options for growth have left HSBC to look for cost reduction across the board. In June, the bank renewed its plan to cut around 35,000 jobs which was halted after the coronavirus outbreak.
The lender has also been keen to dispose of its French business, which it may have to sell at a big loss. Analysts and some investors have long urged the bank to dispose of its U.S. retail business as well entirely.
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