HSBC (HSBA.L) reported a significant pre-tax profit increase to $32.3 billion (£25.6 billion) for 2024 and announced a share buyback program of up to $2 billion. The bank also provided further details on its ambitious cost reduction initiatives. According to Wednesday’s release, pre-tax profits surged by $2 billion compared to the previous year, while revenue experienced a slight decline to $65.8 million from $66.1 billion in 2023.
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Despite this robust profit growth, HSBC shares dipped by 1% in early Wednesday trading. Net interest income (NII), the difference between interest earned on loans and interest paid on deposits, decreased by $3.1 billion to $32.7 billion. The bank attributed this decline to business disposals and increased funding costs associated with reallocating surplus commercial funds to its trading book.
HSBC’s Cost Reduction Strategy and Restructuring Efforts
Operating expenses rose by $1 billion (3%) to $33 billion, primarily due to higher technology investments, increased spending, and inflationary pressures. HSBC declared a fourth interim dividend of $0.36 per share, resulting in a total annual payout of $0.87 per share. The bank also intends to initiate a share buyback program of up to $2 billion.
Following CEO Georges Elhedery’s announcement of a structural overhaul in October, HSBC revealed more details about its cost-cutting strategy. The restructuring, effective from the beginning of the year, divided the bank into four distinct business units: Hong Kong, UK, Corporate and Institutional Banking, and International Wealth and Premier Banking. This reorganization aims to eliminate duplicated processes and streamline decision-making.
HSBC aims to achieve approximately $300 million in cost reductions in 2025, with a projected annualized reduction of $1.5 billion in its cost base by the end of 2026. To realize these savings, the bank anticipates incurring severance and other upfront costs totaling $1.8 billion over 2025 and 2026.
HSBC’s 2025 Outlook and Analyst Commentary
Looking ahead, HSBC projects banking NII to reach $42 billion in 2025. CEO Elhedery emphasized the bank’s focus on simplification, agility, and leveraging core strengths for growth, highlighting the appointment of a new leadership team dedicated to cost and capital management.
Matt Britzman, a senior equity analyst at Hargreaves Lansdown, noted HSBC’s impressive profit performance, driven by strong wealth management and non-interest income. He also pointed out the higher-than-expected impairments, potentially indicating a shift in the bank’s historically strong credit quality. While the 2025 guidance is positive, Britzman suggested that much of the optimism was already factored into the share price, considering the improved US rate environment and anticipated cost management efforts.
Conclusion: HSBC Poised for Future Growth Through Strategic Restructuring
HSBC’s announcement of substantial profit growth and a comprehensive cost-cutting strategy signals a commitment to long-term financial health and efficiency. While share prices remained relatively stable, the bank’s proactive approach to restructuring and its optimistic outlook for 2025 suggest a positive trajectory for future growth. The planned share buyback program and continued dividend payouts further reinforce HSBC’s commitment to shareholder value.
