HSBC HSBC Holdings PLC

By Paul Clarke and Ryan Weeks

Of Financial News

HSBC Holdings PLC's top executives are considering a radical overhaul of the bank to address ongoing underperformance in several of its largest units.

The plans include a potential merger of two of its biggest divisions, as well as the creation of a "bad bank" to house billions of dollars of unwanted assets and businesses, according to people familiar with the management's proposals.

The people stressed that final decisions have yet to be taken and the structure of the overhaul could change. A spokesperson for HSBC declined to comment on the plans.

The bank has signaled that it will reveal a strategic overhaul on Feb. 18 when it reports full-year results. Analysts and investors have been waiting for details of the plan since interim chief executive Noel Quinn promised to "remodel" the bank in October.

Two people familiar with management's plans told Financial News that HSBC is likely to unveil a new unit that will house both its global banking functions and certain parts of its much larger commercial banking business.

Greg Guyett, who was recently promoted to lead the global banking and markets business, is the frontrunner to take charge of the new unit, the people said. Mary MacLeod, who joined the bank as chief operating officer of global banking from McKinsey last year, could become COO of the combined group, they added.

HSBC is also considering the creation of a bad bank to house $150 billion-$250 billion in unwanted or underperforming assets and business lines, according to one person. These could include global banking and markets assets, as well its French retail unit and Turkish operations.

Its global banking and markets business is likely to be a target for cuts, according to Citigroup analysts, who have described HSBC as a "poster-child for the challenges of global banks." HSBC could cut risk-weighted assets in its US investment bank by up to 50% and by a third in Europe, they added. Together with its plans to dispose of its French retail bank, this would reduce RWAs by a total of $83 billion, the Citi analysts said.

HSBC's commercial banking unit posted revenues of around $4 billion in the first six months of 2019, accounting for 33% of group earnings. Global banking and markets made up 23% of revenues.

The investment bank has been on a push to win larger deals but has lagged behind its competitors for years in mergers and acquisitions advice and equity capital markets underwriting.

Integrating the commercial and investment banking businesses would be a challenge, according to one senior figure who has overseen similar transformations at other large institutions.

"For a start there are cultural issues, with investment bankers and commercial bankers generally butting heads," they said. "Then, at HSBC, there is the infrastructure... both divisions run on completely separate platforms. Combining that will be both costly and challenging."

The creation of a bad bank is a radical prospect, but follows similar moves at struggling European rivals. In July last year, Deutsche Bank AG said it was hiving off 288 billion euros ($313.9 billion) in assets and businesses into what it termed a capital release unit. In mid-2014, Barclays PLC created a "non-core" division to house around 400 billion pounds ($518.6 billion) in assets, which it closed in 2017.

The bank's top management has already shaken up the senior ranks in recent months. Samir Assaf, its long-serving head of global banking and markets, stepped down in November. Matthew Wallace, its co-head of corporate finance, left in January. The bank installed two new co-heads of debt capital markets, Adam Bothamley and Sean McNelis, in December.

Website: www.fnlondon.com

(END) Dow Jones Newswires

February 13, 2020 07:42 ET (12:42 GMT)

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