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COMMENTARY

HSBC unveils mandate for radical shakeup

London

HSBC's new interim boss deserves credit for staying positive. Even as he abandoned an important return target for 2020, Noel Quinn pointed to businesses that "held up well in a challenging environment". And though he talked about accelerating remodelling plans, he and Chairman Mark Tucker will have to be sure they are sufficiently bold.

Mr Quinn took over in August and is now keen to lose the "interim" moniker. Lousy third-quarter figures unveiled on Monday can largely be pinned on his predecessor, John Flint.

Adjusted pre-tax profit fell 12 per cent from a year earlier, to US$5.3 billion, hurt by plunging revenue from trading stocks, bonds and the like. A 9.5 per cent return on tangible equity in the first nine months made next year's 11 per cent aim unreachable.

An updated strategy is due to be released early next year.

HSBC is already considering offloading its French retail bank, and Mr Quinn, the former commercial bank chief, said he wants to "rebalance capital away from low-return businesses", such as those in the United States and Europe. He also may axe the equity sales and trading division, Britain's Sunday Times has reported.

The risk is that the next shakeup proves as underwhelming as previous efforts. HSBC's equities business is small, at about 1.6 per cent of group revenue, while the French retail unit represents just 0.4 per cent of risk-weighted assets, using UBS estimates.

Meanwhile, moving capital around the world is harder under post-crisis regulatory changes designed to safeguard the financial system.

A radical option would be for Mr Quinn to start carving up HSBC, for example by listing a stake in the UK and US businesses and using the proceeds to grow in more profitable Asia. That is unlikely, however, as he seems wedded to the heritage of a globally-integrated trade bank.

Another possibility would be to slash even more jobs and close more units in Europe and North America. Those businesses account for almost half of HSBC's US$865 billion in risk-weighted assets, but just 7 per cent of pre-tax profit in the latest three-month stretch.

The familiar rebuttal is that meaningful cuts there would hinder HSBC's ability to properly bank international businesses.

A woeful performance at least gives Mr Quinn plausible justification to sacrifice sacred cows. REUTERS

READ MORE: HSBC posts sharp fall in Q3 earnings

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