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HSBC Mulls Over Segment Realignment as a Step Toward Cost Efficiency
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HSBC Holdings (HSBC - Free Report) is considering a merger between its Commercial Banking and Global Banking and Markets divisions as part of its new CEO Georges Elhedery’s efforts to reduce costs and improve operational efficiency. This news was first reported by Bloomberg.
By integrating these two major divisions, HSBC aims to streamline operations, eliminate redundant roles and create a more focused approach to serving clients of all sizes.
HSBC’s Strategic Move to Reduce Overlap
The step would bring together HSBC’s Commercial Banking business, responsible for 35% of its revenues, and the Global Banking and Markets division, which contributed 24% of revenues last year.
Combining these businesses is expected to help eliminate duplication in roles, especially within back-office operations, and reduce the bank’s overall management layers. This initiative aligns with Elhedery’s goal to cut unnecessary costs and simplify the organizational structure.
Both divisions already share certain services, such as trade finance, payments solutions and credit and lending, but the consolidation would unify these offerings under a single umbrella and eliminate the need for two separate divisions to perform similar functions for different client segments.
If implemented, this would follow a broader trend among banks to reduce complexity and increase efficiency, echoing the moves by JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) . Earlier this year, JPM combined its Commercial Banking and Global Markets segments into a single Commercial and Investment Banking segment.
C changed its operating model in the fourth quarter of 2023. This resulted in a streamlined and straightforward management structure, aligned to support the bank's expansion strategy. It trimmed management layers and now operates under eight layers rather than 13.
HSBC’s Cost Savings & Revenue Generating Efforts
By combining the two divisions, HSBC stands to generate substantial cost savings. This is expected to allow the company to offer more comprehensive and efficient services to both mid-sized and large multinational clients.
The move would also help HSBC respond to the current economic environment, where inflation and rising technology costs have put pressure on profit margins. By consolidating roles and eliminating redundant processes, it can lower operational costs while maintaining service quality. This is particularly important as central banks globally are starting to cut interest rates, further affecting the profitability of traditional banking operations.
HSBC’s Pivot Toward Asia
If the segment consolidation plan is implemented, HSBC can expect to see greater operational efficiency, reduced complexity and enhanced client service capabilities.
Though no final decision has been made, this potential merger signals a willingness to make bold changes to improve profitability and position HSBC for long-term success. The bank’s focus will likely shift toward leveraging its strengths in Asia and wealth management while continuing to streamline its global operations.
As part of the shift, HSBC is reportedly considering selling its South African businesses and is actively restructuring its operations in Germany. In April 2024, it announced an agreement to divest its Argentina business, while in February, HSBC agreed to sell its Armenian unit. The company has exited retail banking businesses in the United States, Canada, France, New Zealand, Greece and Russia.
Additional Steps by HSBC to Boost Efficiency
Beyond segment consolidation, Elhedery has implemented several other measures to improve HSBC’s operational efficiency. These include slowing hiring, reducing unnecessary expenses for investment bankers and reviewing middle management structures to eliminate unnecessary roles.
HSBC is also increasingly focusing on fee-based businesses to counteract declining net interest income. These combined efforts demonstrate HSBC’s commitment to cutting costs, increasing profitability and adapting to an evolving financial landscape.
With the right balance of strategic restructuring and operational discipline, the bank is poised to strengthen its competitive position in the global market.
In the past six months, shares of HSBC on the NYSE have gained 17.8%, outperforming the industry’s growth of 8.7%.
Image: Bigstock
HSBC Mulls Over Segment Realignment as a Step Toward Cost Efficiency
HSBC Holdings (HSBC - Free Report) is considering a merger between its Commercial Banking and Global Banking and Markets divisions as part of its new CEO Georges Elhedery’s efforts to reduce costs and improve operational efficiency. This news was first reported by Bloomberg.
By integrating these two major divisions, HSBC aims to streamline operations, eliminate redundant roles and create a more focused approach to serving clients of all sizes.
HSBC’s Strategic Move to Reduce Overlap
The step would bring together HSBC’s Commercial Banking business, responsible for 35% of its revenues, and the Global Banking and Markets division, which contributed 24% of revenues last year.
Combining these businesses is expected to help eliminate duplication in roles, especially within back-office operations, and reduce the bank’s overall management layers. This initiative aligns with Elhedery’s goal to cut unnecessary costs and simplify the organizational structure.
Both divisions already share certain services, such as trade finance, payments solutions and credit and lending, but the consolidation would unify these offerings under a single umbrella and eliminate the need for two separate divisions to perform similar functions for different client segments.
If implemented, this would follow a broader trend among banks to reduce complexity and increase efficiency, echoing the moves by JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) . Earlier this year, JPM combined its Commercial Banking and Global Markets segments into a single Commercial and Investment Banking segment.
C changed its operating model in the fourth quarter of 2023. This resulted in a streamlined and straightforward management structure, aligned to support the bank's expansion strategy. It trimmed management layers and now operates under eight layers rather than 13.
HSBC’s Cost Savings & Revenue Generating Efforts
By combining the two divisions, HSBC stands to generate substantial cost savings. This is expected to allow the company to offer more comprehensive and efficient services to both mid-sized and large multinational clients.
The move would also help HSBC respond to the current economic environment, where inflation and rising technology costs have put pressure on profit margins. By consolidating roles and eliminating redundant processes, it can lower operational costs while maintaining service quality. This is particularly important as central banks globally are starting to cut interest rates, further affecting the profitability of traditional banking operations.
HSBC’s Pivot Toward Asia
If the segment consolidation plan is implemented, HSBC can expect to see greater operational efficiency, reduced complexity and enhanced client service capabilities.
Though no final decision has been made, this potential merger signals a willingness to make bold changes to improve profitability and position HSBC for long-term success. The bank’s focus will likely shift toward leveraging its strengths in Asia and wealth management while continuing to streamline its global operations.
As part of the shift, HSBC is reportedly considering selling its South African businesses and is actively restructuring its operations in Germany. In April 2024, it announced an agreement to divest its Argentina business, while in February, HSBC agreed to sell its Armenian unit. The company has exited retail banking businesses in the United States, Canada, France, New Zealand, Greece and Russia.
Additional Steps by HSBC to Boost Efficiency
Beyond segment consolidation, Elhedery has implemented several other measures to improve HSBC’s operational efficiency. These include slowing hiring, reducing unnecessary expenses for investment bankers and reviewing middle management structures to eliminate unnecessary roles.
HSBC is also increasingly focusing on fee-based businesses to counteract declining net interest income. These combined efforts demonstrate HSBC’s commitment to cutting costs, increasing profitability and adapting to an evolving financial landscape.
With the right balance of strategic restructuring and operational discipline, the bank is poised to strengthen its competitive position in the global market.
In the past six months, shares of HSBC on the NYSE have gained 17.8%, outperforming the industry’s growth of 8.7%.
Image Source: Zacks Investment Research
At present, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.