HSBC Cuts Bonus Pool By US$600 Million As Bank Focuses On Costs, Bad Loans

Bonus cuts come despite 55 per cent jump in revenue in global markets business in second quarter HSBC set aside US$13 billion in first half for bad loans
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HSBC Cuts Bonus Pool By US$600 Million As Bank Focuses On Costs, Bad Loans

HSBC cut its bonus pool by US$600 million in the first half of the year as chief executive Noel Quinn slashed costs as part of a massive restructuring of the lender and as the bank prepared for a potential surge in bad loans due to the coronavirus pandemic.

The bonus pool shrank despite a 55 per cent jump in revenue in the bank's global markets business during the second quarter as the coronavirus pandemic created a volatile trading environment. The bank's fixed-income operations were a stand-out in the quarter, with a 79 per cent jump in revenue.

Overall, HSBC's operating expenses declined by 4 per cent in the first half of the year as it reduced the bonus pool as well as discretionary spending, such as travel and marketing. Executives, however, cautioned some of those cost reductions - and the outsize performance of its trading businesses - may not be repeated later in the year.

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"In the second half of this year, on the profitability side, we don't expect global markets to repeat their first-half performance of just over $4 billion [in revenue]," Ewen Stevenson, the bank's chief financial officer, said during the bank's first-half results presentation this week. "They made $2.6 billion in the second half of last year, and also we've got the UK bank levy [in the second half of the year]."

HSBC declined to comment on the bonus pool cut on Thursday.

The London-based bank, which generates the bulk of its profit in Asia, set aside US$13 billion in provisions for soured loans and reported a 77 per cent drop in its first-half profit as the pandemic forced businesses to shift primarily to working from home and cut travel worldwide.

The bonus pool cut comes as HSBC and its banking rivals face a much more challenging operating environment because of historically low interest rates and subdued business activity this year.

Bankers and other financial services workers in Hong Kong took pay cuts of as much as 20 per cent and suffered an even heavier hit to their annual bonuses this year as the city navigates a historic economic downturn, with the local economy contracting by 9 per cent in the second quarter, headhunters have said.

HSBC also has found its business, which spans from East to West, caught in the middle of rising tensions between the United States and China in recent months over its support for a controversial national security law for Hong Kong, its biggest market.

Quinn, who was named permanent CEO in March after taking the job on an interim basis last year, is seeking to eliminate 35,000 jobs and reduce annual expenses by US$4.5 billion over the next three years as part of a reshaping the lender. The bank achieved about US$300 million of those projected cost cuts in the first half of the year as it was forced to temporarily suspend the job cuts, which it resumed in June.

As part of the restructuring, HSBC is shifting capital from underperforming businesses in the United States and in Europe to growth markets in Asia and investing in its digital operations. This week, the bank announced it planned to hire up to 3,000 wealth planners in mainland China over the next four years as part of a growth push in the Greater Bay Area.

In addition to its efforts to trim costs, HSBC also has faced pressure from its chief regulator in the United Kingdom, the Prudential Regulation Authority, to preserve capital by suspending its dividend this year and curtailing bonuses.

"The extra headroom should help the banks support the economy through 2020," the banking regulator said in a statement on March 31.

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