HSBC: Bank changes business model, account management fees and commissions instead of interest

Europe’s largest bank, HSBC, is tightening its austerity course after a profit slump and is restructuring its business model. In the third quarter, earnings before taxes fell by 35 percent to $ 3.1 billion due to the Corona crisis and low interest rates, as HSBC announced. Instead of interest income, commission income is to become HSBC’s most important source of income in the future. Customers therefore have to be prepared for higher fees.

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CEO Noel Quinn (59) announced further savings. He will state specific goals when presenting the business figures for the full year at the beginning of next year. As it currently stands, the bank can already exceed its previous savings target with the measures introduced in February.

“We will need to consider charging basic services in some markets,” said CFO Ewen Stevenson the Reuters news agency. Because because of the low interest rates, the bank is making losses with many customers.

In important markets such as Great Britain, customers are used to services such as checking accounts being free. So far, HSBC has always proudly pointed out that the more than $ 1.5 trillion in customer deposits bring its high net interest income. But in the fight against the Corona crisis, the central banks have opened the money locks worldwide. The Bank of England, for example, has lowered the key rate to 0.1 percent and is reviewing negative interest rates. The financial institutions in the euro zone have had to pay interest since 2014 when they park excess money at the European Central Bank (ECB).

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In Germany, banks have therefore been turning the fee screw for years: Many have increased account fees, raised the prices for transfers and introduced penalty interest for high balances. Free current accounts are rarely offered in this country or are at least linked to a minimum amount of money.

HSBC cuts every fifth position in Germany

At the same time, cost pressure is forcing banks to make further savings and cut jobs. HSBC announced in February that it would cut 35,000 jobs worldwide. In Germany, HSBC will cut 633 full-time positions by 2022 – that is 22 percent of the jobs available at the end of 2019. The bank is not planning to expand the job cuts at the moment, but that could change with the ongoing restructuring of the company, said CFO Stevenson.

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HSBC’s revenues fell 11 percent to $ 11.9 billion in the third quarter. To counteract this, HSBC now wants to push annual costs below $ 31 billion – a more ambitious target than it was in February. In 2019, operating costs were $ 42.3 billion.

The competitor Santander is also turning the cost screw again. The major Spanish bank announced on Tuesday one billion euros in additional savings by 2022 and job cuts. According to a report in the newspaper “Expansion”, Santander plans to lay off around 3,000 employees in Spain. This would cut 11 percent of jobs.

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Both HSBC and Santander are positive about the development of loan defaults, which are lower than initially feared. HSBC expects provision for bad loans to be on the lower end of the previous range of $ 8 billion to $ 13 billion. Because of the Corona crisis and global political tensions, this forecast is fraught with many uncertainties. In the third quarter, the burden of bad loans was lower than analysts expected. These had only given the bank a pre-tax profit of $ 2.1 billion.

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The unexpectedly high profit and the strategic swing drove HSBC shares up more than 6 percent. In the current year, however, the share has still lost more than 40 percent of its value, slightly more than the European industry index Stoxx 600 Banks. With a market value of around 76 billion euros, HSBC is still by far the most valuable bank with a seat in Europe.

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