HSBC CEO Says U.S. Cuts Will Pave Way for Middle East Growth (Full Interview)

Yeah. Thank you, David. So if you recall, we announced the organisation simplification back in October, end of October, and then we set it in place as of the 1st of January and we've given additional details. To contribute just a few points: First, we have great momentum in the business. Our strategy is working. We're delivering results. You've seen our 2024 results. They're strong. I have to thank all my colleagues and obviously the trust of our customers to be able to achieve them. But the momentum is with us. Second, we've demonstrated that we can be disciplined. So we've been disciplined in the way we allocate our cost. We allocate our capital. We've demonstrated that discipline is ingrained and we will carry it forward. And third, we also demonstrated that we have confidence in the business because among other things, we've given the target for our returns on tangible equity for the next three years, for every year, the team's return, which is based on the underlying confidence we have on the trajectory our business is taking. So with this backdrop, it was necessary for us to think, look, where can we drive the next areas of growth, but also where can we drive the next areas of efficiencies? And one major finding is that we haven't been a simple organisation where we simplified what we do. We haven't simplified enough and I would pause how we do it. And if you want, by simplifying what we do over the last many years, it was just the right moment now to simplify how we do it. And that had to come through in the form of organisation simplification. What we reported also, David, is that we will be able to drive about 0.5 billion of efficiencies without an impact on our revenue. So that's about 8% of our staff cost without impacting what we do in terms of the revenue generation capabilities just by being more efficient. The primary purpose of this organisation simplification is to be simple, to be agile, to be able to adapt to a changing world, to be able to adapt to changing customer needs, to make decisions faster, to be faster to market. And we're on the journey at pace to deliver this information.

So what we've announced is we will be incurring about 0.8 billion of costs, essentially severance costs. Most of the decisioning for that will take place this year. Most of it will take place in the first half of the year. The benefits will start materializing this year with a $300 million benefit coming this year. The benefits will materialize in full by the end of full year 2026. So the full year 2027 will benefit from the full 0.5 billion saves that we are targeting. What we also committed is that these will be permanent saves going forward and that we're taking these saves straight to the bottom line. So it's a payback period of effectively roughly two years, but a permanent benefit, the cost savings.

So the organizational simplification benefits, which are efficiency saves, not impacting revenue in any material shape. One and a half billion dollars. Those will be taken to the bottom line. That's the first one and a half billion. Now, additionally to that, we're also looking at what we do and recognize that there are further focus that we can achieve in our business where we will be taking one and a half billion dollars from activities that we are currently doing that are either non-strategic or non-returning. And we would reallocate, and we are reallocating these billion as we materialize the saves. We would reallocate them back into areas where we have competitive strength, where our customers expect us and want us to be, where we can generate good returns and where we have greater opportunities to grow. This second one and a half billion dollars, the revenue we would lose against it because we will be stopping activity in those units, those assets, yet those assets we expect to be able to generate better quality revenue instead because they are more strategic or higher return.

But there are a number of these initiatives which we've already communicated to the market. For instance, about $300 million of this 0.5 billion will be delivered through our decisions around investment banking and particular M&A in DCM, in Europe and in the Americas, where we're basically scaling down this activity. And the others will come from other inorganic activities, such as the sale of our German bank business, the sale of our French insurance business, but in retail business, etc.

So with regards to efficiency saves, yes, most of the announcements are done. The rest is execution and we will be able to talk to how much we've decisions. But again, we have committed to achieve these saves by the end of full year 2026. So we're working on that timeline. With regards to the reallocation of costs from non-strategic or lower returning areas to strategic areas of stronger competitive advantages and higher growth prospects and obviously high return prospects, we will announce as and when we have something to announce. So as I said, I've shared with you some of the ones that we've gone public with and then the rest, as and when we're ready to announce, we will make it public.

Well, the first message to employees is a big thank you because the momentum that we've been driving with this business and the results we've generated, as was communicated in February for the full year 2024, is the focus, the relentless focus of our employees and their focus on supporting our customers. And obviously a major thank you to our customers because of the trust that they placed in us to give us their business. And it's very important that we carry on this mission. The primary mission is to serve our customers. Customers are at the heart of everything we do. And serving our customers remains the primary, unwavering objective for all our employees, whether you serve them directly or whether you serve other employees who are in turn serving those customers.

Yeah. So it's inevitable that when you go through similar organization simplifications, there are some roles, most at the senior level, where you have duplication and where at the end of the day you will lose some roles or some individuals due to the duplication of positions, mostly again at the senior level. So that is an inevitable outcome from such an exercise. But in general, we're building that highly valued talent with a high performance culture. We want to attract talent, we want to retain talent, we want to train talent, we want to give opportunities to talent, and we want to be able to reward them competitively.

First, I'm very proud to say that we're celebrating this year 160 years of HSBC. And as you know, we were born in Hong Kong. We were born in March, 1865, in Hong Kong, about 200 meters from here. And then a month later, we had the first office in Shanghai. And then within a year we had offices around the planet. And then 106 years ago, big parts of this region didn't exist the way we know it today. But come to 60 years. And we've served our customers all the way through this journey for the last 160 years. Hong Kong is the heart. It's one of our two home markets, Hong Kong and the UK, heart of HSBC. We have customers that we've served for decades, if not 160 years. We keep investing in Hong Kong. It's a major growth area for us. Hong Kong is on track. Well, Hong Kong is a global financial centre, but it's also on track to become the largest cross-border wealth hub in the world sometime this decade. And we're a major beneficiary of this trend and we're here to serve our customers.

Absolutely. Happy with our investment banking in Asia Pacific. Look, for the investment bank, we obviously want to double down on all our capability, our own debt, that's the capital markets, leverage acquisition, finance and other financing activities because that's the host for everything we do globally. And then regards Asia and the Middle East, we will also double down our capabilities in M&A and ECM. So the exit that we are processing now in Europe and the Americas is to allow us to focus on the areas where we can really be differentiating to our customers, where we play to a competitive strength and we really bring value to the markets, to the economies, to customers.

Yeah. So we're, without giving specifics about how we deal with the cost, one thing we've absolutely honed in on is that any investment we do is subject to scrutiny and is subject to discipline. So where we allocate our spending and investment capacity and where we allocate our capital is going to be rigorously monitored at the top of the house. So we'll be very purposeful that all of these reinvestments are happening purposefully in a focused way in the areas where we can drive the highest returns, highest growth areas, and where we know we have competitive advantages.

So, look, I mean, rate forecasts have been changing literally every month and every hour, sometimes every hour. So it's very difficult to have a very clear view on where rates are heading. And that uncertainty is driven ultimately by the underlying outlook of inflation. Inflation is going to be an important driver of the rate outlook. And obviously inflation is going to depend on a number of parameters, including economic growth, but also considerations in global trade such as tariffs and currency volatilities, etc. So, as you said, those forecasts do tend to change. A few things to observe. First, most of the geographies where we operate have governments taking pro-growth measures, measures that support growth and innovation. And this is a positive. Second, while we recognize there remains a number of uncertainties, in particular around global tariffs for the largest trade bank, APRA, it's also very important to note that our customers' businesses continue thriving and we follow them on their business needs across all the global corridors where they want to trade, where they want to sell, where they want to manufacture, in the way they want to partner. And we are along these corridors across our network, and we have one of the unique, broad and deep networks on this planet where we can support our customers. And then the world will support them on the set of uncertainties. I just want to touch on the rate outlook. Remember that we've also taken a lot of measures to reduce the dependency we have on rates for our own earnings. Firstly, we've taken structural hedging activities that limit the downside risk on our earnings from rates. Such a hedging strategy which we've communicated to the market in detail over the last few years. And second, we're working very much on growing the areas of fees and other income, such as wealth. Hong Kong is a great linchpin for that. But we demonstrated more than 30% growth in our wealth revenues in Asia in 2024 compared to 2023. And in other areas such as transaction banking for our wholesale businesses, they are also growing in the mid-single digit. And we continue investing in these areas to give us growth in our earnings that are not interest rate dependent.

We will grow in the fee business areas because that's an area of focus and a competitive advantage. And then we will protect the downside on rates. But we also want to grow the volumes. I mean, remember, with a deposit bank at the heart of businesses, when most of our business is run at a 50% loan to deposit ratio, stable deposits are a good demonstration of customers' trust in the strength of our balance sheet, and we want to continue growing the deposit base as well as growing our loan base.

Well, first, it's a privilege and an honour to take this job, to lead such a fantastic institution. And I think you'll always have to learn. I've been learning every day in this job. I expect to continue learning throughout my career. The one thing I remember is the advocacy. The one thing that really strikes you, struck me when I was in the job, is the advocacy for the customers. Our customers really love us because of the franchise we have. Everything we do is about our customers. They're at the heart of everything we do, and we need to continue serving them and serving them at the best of their expectations.