HSBC to revise business model as lower interest rates hit profit

London

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 rates to fee-based businesses.

Reporting a 35 per cent tumble in quarterly profit, Europe's largest bank also accelerated plans to shrink in size and will slash costs further than previously suggested.

The planned changes to its business model 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 US$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 that net interest income would remain under pressure.

In a potentially seismic shift for the banking industry, HSBC also said it could start charging for products such as current accounts that customers in some markets such as Britain expect to be free.

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"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 said.

The restructuring measures helped its Hong Kong-listed shares jump more than 5 per cent, although they have still lost nearly half their value for the year to date.

Underscoring its challenges, the bank's revenues fell 11 per cent compared with the third quarter last year to US$11.9 billion. The 35 per cent slide in pre-tax profit to US$3.1 billion, however, was not as deep as expected, better than a consensus estimate of US$2.07 billion as HSBC flagged an easing in bad loan provisions. HSBC now expects losses from bad loans to be at the lower end of the US$8 billion to US$13 billion range it set out earlier this year.

"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," it said. REUTERS