HSBC CEO Is Said to Mull Exiting More Countries in New Plan

(Bloomberg) -- HSBC Holdings Plc Chief Executive Officer John Flint and Chairman Mark Tucker are considering shrinking the bank's global imprint even further as part of a plan set to be revealed over coming months, according to people with knowledge of the discussions.

Flint, who took over in February, is reviewing as many as a quarter of the 67 countries the bank operates in, and is mulling an exit or sale from smaller consumer operations such as Bermuda, Malta and Uruguay, said the people, who asked not to be identified because the strategy isn't finalized.

The CEO is also looking at expanding the asset management unit, potentially merging it with a rival, they said. Discussions about HSBC's strategy are at an early stage and no final decisions have been made, they said.

A spokeswoman for HSBC declined to comment beyond saying that the bank will update investors at or before its first-half earnings. The shares have fallen 14 percent this year, the most among the five largest U.K.-based lenders.

While the countries under review may be profitable, the duo want to sharpen the focus on the trade corridor that runs from Asia, through the Middle East and Europe, to North and Central America, the people said. With investors increasingly questioning sub-par returns, HSBC needs to eliminate more peripheral operations where there's little rationale for running a costly full-service bank, especially on the retail side, according to the people.

Expensive Restructuring

“In principle, such further rationalization may well make sense,” said Ian Gordon, an analyst at Investec Plc with a hold rating on the stock. However, “there's the obvious concern that just as one major and expensive multi-year restructuring programme comes to an end, a new initiative follows on.”

As part of the review, Flint is assessing options for the wealth and asset management unit including the possibility of creating an independent unit, two of the people said. It has historically been combined with retail banking because of the overlap of rich clients between the two. The CEO said in an interview in February he's exploring all options for the business, including a merger, to create a larger player that can compete better as the industry consolidates.

World's Local Bank?

HSBC -- which used to call itself the "world's local bank" -- has been shrinking since the financial crisis as low interest rates and new regulations put earnings under pressure, and misconduct scandals revealed widespread compliance failures.

During Stuart Gulliver's prior seven years as CEO, the lender closed almost 100 businesses and reduced the number of countries it operated in to 67 from 88. Even after these efforts, the bank still has 3,900 global offices, 229,000 employees. With $2.5 trillion of assets, it's Europe's largest bank.

Executives are also cognizant of the bank's responsibility in nations where it has a dominant market position, the people said. For example, HSBC is the second-largest bank in Malta and holds almost half of deposits in Bermuda. Managers are also wary of exiting places in Asia where investors have long memories when international companies pull out, they said.

South America

Executives are scheduled to hold an internal strategy meeting in June and later unveil the new three year plan alongside first-half results, the people said. Tucker has told colleagues not to expect a radical "big bang" announcement that unsettles staff and investors, according to people familiar with his thinking. He and Flint's primary aim will be to speed up HSBC's so-called “pivot” to Asia, where it's pledged to shift more than $100 billion of capital.

While HSBC returned to revenue growth last year after a five-year slump, the bank's return on equity came in at 5.9 percent, far below its target of 10 percent. Its closest rivals in terms of balance sheet size, JPMorgan Chase & Co. and BNP Paribas SA, made 10 percent and 8.9 percent respectively.

HSBC has been slimming its presence in South America for years. The lender agreed to sell its operations in Uruguay, Colombia, Paraguay and Peru to Banco GNB Sudameris in 2012, but the deal for the Uruguayan bank fell through two years later, according to media reports at the time. Flint is likely to try again, said the people familiar with strategy deliberations.

The bank sold its Bermudian private banking and trust businesses in 2015, but kept the investment, retail and commercial banking operations. They are now also being considered for sale, said the people.

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Jon Menon

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