Seeing its profit plunge 34%, HSBC doubles down on Hong Kong, where the bulk of its earnings comes from, despite concern about the political crackdown in the former UK colony.

The British multinational says its pre-tax profit fell 34% to $8.8bn from higher expected credit losses, other credit impairment charges (ECL), and lower revenue.

The bank’s reported revenue dropped 10% to $50.4bn, knocked down by lower interest rates across its global businesses. Adjusted revenue fell 8% to $50.4bn.

During 2020, deposits grew by $204bn on a reported basis; and $173bn on a constant currency basis, with growth in all global businesses.

The UK’s largest bank has undertaken a major shuffle in senior management across divisions, partly reflecting the bank’s optimism about Asia-Pacific.

Bullish on Asia: Hong Kong and China

HSBC says in its report:

“After the significant deterioration in global economic conditions in the first half of the year due to the Covid-19 pandemic, there were signs of improvement in the second half, especially in Asia.

“The most impressive economic recovery has been in China – still the biggest driver of global growth – where international trade is rebounding most strongly.”

The group aims to shift capital to Asia, where most of its profit come from.

At the same time, the London-headquartered bank has announced the closure of 82 branches across the UK, saying the pandemic has led to a greater shift to online banking.

Leaving troubles behind

HSBC has faced regulatory challenges across its operations in recent years. Notably, it had to pay penalties to settle allegations of defrauding clients through a practice known as front-running and helping Americans evade taxes.

In 2012, the bank entered into a settlement with US prosecutors that allowed it to avoid criminal charges over anti-money-laundering failures.

A major condition of the agreement was that it undertake compliance reforms over a five-year period under the watch of an independent monitor.

The bank also paid a then-record $1.9bn to settle the US Justice Department’s allegations it failed to spot the laundered proceeds of drug trafficking in Mexico.

And that its employees stripped data from transactions involving sanctioned nations such as Iran to avoid detection.

On his first year on the job, HSBC’s chief executive Noel Quinn has worked hard to transform the company and leave its troubles behind.

He has rolled out a major restructuring plan that will involve at least 35,000 job cuts, battled the financial impact of Covid in both Asia and Europe, and steered the bank through a geopolitical storm over its response to democracy clashes in Hong Kong.

Outlook and strategy

The CEO says:

“We recognise a number of fundamental changes, including the prospect of prolonged low interest rates, the significant increase in digital engagement from customers and the enhanced focus on the environment, and we have aligned our strategy accordingly.”

He says the bank intends to increase its focus on areas where it is strongest, accelerate its investments, and continue the transformation of its underperforming businesses.