Opening Bell 02.19.20
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BACK TO BASICS
While most companies are currently looking to get the f*ck out of Asia, HSBC is going all in. The Hong Kong-based bank announced that it is cutting 35k jobs globally as it pulls much of its operations out of the US and Europe. The withdrawal is expected to free up $100B worth of assets to be reinvested in domestic (Asian) growth initiatives.
Long time coming
HSBC has had a rough go of it since the financial crisis in 2009, culminating in a 53% drop in net profit in 2019 ($5.97B) vs. 2018. Hong Kong’s biggest bank also began a restructuring effort last fall that is expected to cost at least $7.3B over the next few years. And that my friends, is a textbook example of how to send a stock price down 6% in a day.
Troubles in Europe have been a major drag on the bank. With Brexit wreaking havoc on markets and negative interest rates (thanks, Scandinavia), the bank hasn’t been able to turn a profit in Europe.
At least things are better on the homefront ... *in my best Borat voice* NOT. Protests in Hong Kong, trade tensions, and coronavirus (ever heard of it?) have added to HSBC’s woes. Still, Asian markets are the bank’s moneymaker, with APAC profits coming in at $18.47B.
Please prepare 16 bars
The man tasked with the turnaround is interim CEO Noel Quinn. Formerly, the head of global commercial banking at HSBC, Quinn is no stranger to telling employees to take a hike. As part of the restructuring in the fall, Quinn cut 5k employees and sold off its French retail banking unit. How he does with the restructuring could play a big part in whether or not Quinn gets to drop that “interim” tag from his title.
The bottom line ...
Sometimes getting back to basics is good for a company. And HSBC will probably be ok ... which is more than 35k soon-to-be-unemployed HSBC cogs can say.
The bank is profitable in Asia, has a solid asset base and has finally pulled the band-aid on its road to recovery. Plus the bank will still play an important role as an intermediary between the East and West.
HSBC announces major layoffs, business reduction [WSJ]
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