When senior executives from HSBC gathered for a board meeting in Dubai last September, the first under new chief executive Georges Elhedery, they had more than an inkling of what was coming.
His pitch for the top job that summer had centred on yet another round of restructuring at the bank, aimed at cutting complexity, reducing costs and improving profitability. It would involve further refocusing the institution that once styled itself as “the world’s local bank” on key markets, especially in Asia, and exiting less significant territories and activities.
The plan was unveiled in October and, eight months later, the Lebanese-born Elhedery has largely done as he promised: reorganising the bank around “eastern” and “western” operations with four standalone units, merging commercial and investment banking activity outside Asia and withdrawing from investment banking in the UK, US and Europe.
He says the changes will help cut $1.5bn from HSBC’s annual costs by the end of next year, with a further $1.5bn from exiting less profitable businesses reallocated to more lucrative areas. But in the meantime, the challenges facing it have also increased materially.
Two big negatives in particular have coincided. First, there is no escaping the fact that the bank, whose 160 years of existence have been built on long-term growth in global trade, can only be harmed by US President Donald Trump’s aggressive and unpredictable policies on trade and tariffs. His hostility to China, the spiritual home of the original Hongkong and Shanghai Banking Corporation and HSBC’s most important market, is especially concerning.
At the same time, the benefits that large deposit-taking banks like HSBC have accrued from a period of higher interest rates are going into reverse as interest rates worldwide head downwards.
The revenue from HSBC’s commercial banking business, combined with the net interest income generated from taking deposits and lending them out, accounted for 82 per cent of the bank’s total revenue in 2024.
Investors have given Elhedery’s blueprint, which will cost around $1.8bn to implement, a generally positive reception. But the group’s third chief executive in six years will be well aware that past overhauls have not moved the dial enough.
“Previous reorganisation attempts have arguably been too incremental and have frequently underdelivered,” says Samuel Richardson of Aberdeen Group, a top 20 shareholder, who believes that Elhedery’s plans “represent an improved strategic focus”.
But some argue that the bank is abandoning its global ambitions in favour of a return to its Asian roots. They worry that the cost-cutting, along with pressure from tariffs and falling interest rates, will result in insufficient capacity for growth — especially given that the group’s investment bank is being radically downsized.
“He needs to give people a sense of where the growth is coming from,” says one senior executive within the bank. “HSBC has a tonne of money to spend and they’ve done a lot of [share buybacks] already. Investors want to know how the bank will spend that on growth.”
There is also a personal dimension to his mission. HSBC’s chair, Sir Mark Tucker, is due to leave the group at the end of September, having worked with four chief executives during his tenure. His replacement — HSBC has pledged to have a new chair in place by 2026 — will want to see evidence that Elhedery’s plan is working.
“He is under time pressure because a new chair will join next year and their first job will be to review his performance,” says the executive. “If he gets past that . . . he can slow the pace.”
HSBC declined to comment. But the bank stands apart because of its size — it is Europe’s biggest bank by both assets and market capitalisation — the turnover among its top brass and its unique footprint spanning east and west.
As Trump signed a slew of executive orders in late January, to applause from his supporters, dozens of senior executives within HSBC watched for anything relating to tariffs.
While there are few global financial institutions that would be unaffected by a trade war, HSBC is particularly vulnerable to rising tensions between the world’s two largest economies due to its position as a bridge between them.
During his election campaign, Trump repeatedly talked about increasing tariffs. But Elhedery and others were privately optimistic that his preoccupation with the health of the US stock market and the likely impact of tariffs on inflation would restrain him, according to people involved in the conversations.
That optimism was swept away on “liberation day” in early April, as Trump unveiled a sweeping tariff regime that roiled financial markets and threatened to overturn decades of international trade policy. HSBC’s share price fell almost a fifth in the following week, though it has since recovered most of those losses as many of the tariffs have been put on hold until July 9 or — in the case of China — substantially reduced.
Every HSBC chief in recent memory has had to deal with some sort of existential crisis. Stuart Gulliver took the helm in 2011 after the bank paid a $1.9bn fine in the US following a probe into money-laundering.
Noel Quinn, who took over in 2018 after John Flint’s 18-month stint, had to weather a pandemic that severely disrupted world trade while fending off demands from Ping An, HSBC’s largest shareholder, to spin off its Asia operation.
Previous chief executives have also drawn up plans to scale back HSBC’s presence in Europe and the US, reduce headcount and redouble efforts in Asia and the Middle East, where the lender has a leading franchise.
But Elhedery’s tenure will be additionally defined by one of the most complex challenges yet: reshaping the bank amid the potential rollback of globalisation. HSBC made 16 per cent of its revenue in 2024 from wholesale transaction banking — including cash management, trade finance and payments — though much more of its business, including swaths of its lending and wealth operations, depend indirectly on trade flows.
The 51-year-old’s plan to cope with potentially less trade between the US and China has been to increase exposure to trade routes involving China, India and the Middle East. That prompted his decision to split two of HSBC’s business units — corporate and institutional banking and international wealth and premier banking — along eastern and western lines.
That decision raised eyebrows both internally and externally and prompted speculation that Elhedery was preparing for a formal split, should relations between Washington and Beijing disintegrate further. He has denied this, and HSBC has since quietly changed the names to “Asia and Middle East” and “Europe and America” after some staff complained that the labels were inappropriate.
But as one former HSBC executive points out, trade volume is crucial to the bank and other corridors cannot yet match the flow between China and the US. “The tariffs are changing the volume, not just the distribution,” the person says, adding that the business is difficult to grow because the bank is already the dominant player.
Elhedery, a Mandarin speaker, has started bracing HSBC for impact. “We’ve seen a significant drop in [trade] volumes along the US-China corridor,” he said in April during the bank’s earnings call. HSBC predicted that significantly higher tariffs would have a low single-digit percentage impact on its revenues and an additional $500mn in incremental bad loan provisions.
HSBC has a buffer thanks to its net interest income — what the bank earns from loans and other assets minus what it pays on deposits. Banking net interest income accounted for 66 per cent of HSBC’s total revenues in 2024.
Europe’s largest lender holds almost $1.7tn in customer deposits, almost $1tn of which is used for lending. That leaves it with roughly $700bn, mostly invested in secure, liquid and return-producing assets such as government bonds.
Many senior executives at HSBC take pride in the fact that the bank is conservative with its cash, pointing out that it was one of the few major lenders that was not bailed out with government money during the financial crisis. One described it as “the core ethos of the bank” but conceded that it also makes it particularly sensitive to interest rates.
HSBC has estimated that a 1 percentage point decline in interest rates in each of the next three years would wipe a total of $12bn from its net interest income, based on its balance sheet as of December 2024. That revenue would be difficult to replace.
“If your only means to get profit growth is cost-cutting, that can only survive for so long,” says the former executive. “Your pace of cost savings cannot keep pace with your revenue decline.”
The general principle in Elhedery’s revamp was that businesses in which the lender did not rank among at least the top five would be reviewed, and potentially axed.
That included its investment bank outside Asia, the closure of which has been the most controversial of his changes.
Those inside the bank who support the decision point out some blunt truths. “We’ve done two equity deals outside of the Middle East and Asia and we had a couple we were working on. That’s it,” says one senior executive inside the bank. “Yet we had dozens of people and they all got paid seven figures and we haven’t made any money there, ever.”
HSBC had already significantly scaled back its investment banking presence in Europe and the US under Quinn, though he stopped short of closing it altogether, and bankers had struggled to win market share.
“It was a scale and profitability issue,” says another senior executive at the bank. “In this business, there’s no point being the last bank on the list that people will call.”
But Elhedery’s detractors argue that he has handicapped HSBC by shutting down a business that, regardless of its contribution to the bank’s bottom line, is key to maintaining relationships with important clients.
“Name another global bank of the scale of HSBC that has, to all intents and purposes, given up on investment banking,” says one person close to the bank, adding that limiting the range of services that it can offer key clients raises questions about HSBC’s financing business and future growth.
Elhedery’s decision to keep the bank’s debt capital markets and leveraged finance businesses in the UK, Europe and the US means investment bankers will be solely focused on financing, a position that one person with knowledge of the division describes as “totally unrealistic.”
“If you are providing leverage to private equity firms, you need an investment banking presence,” the person adds. “If you don’t have that it becomes difficult, because your value to these firms is fairly limited.”
Critics also contend that by removing advisory capabilities, HSBC has essentially made it virtually impossible to earn fees from work that does not also require it to put up capital.
The implementation of the decision was also controversial. Many investment bankers were fired on bonus day without receiving bonuses in respect of the preceding year, conduct described by one senior employee at the time as “most unlike HSBC”.
Elhedery’s decision to keep the investment bank in Asia and the Middle East, which had also been under review, has only deepened the perception internally that HSBC is now mostly an Asian bank, not a global one.
Its growth prospects are interlinked with the fortunes of Chinese customers looking to move money to Hong Kong, in some cases because they fear dollar-denominated assets held in other financial centres being frozen — as many Russian-controlled assets were in 2022 — if tensions between the US and China worsened.
Wealth revenue was up 18 per cent in 2024 versus a year earlier and fee income rose by $600mn. But those numbers are difficult to reconcile with the revenue HSBC could lose if net interest income fell or there was a prolonged trade war between the US and China.
The downsizing of the investment bank, the cost-cutting and the withdrawal from non-core markets have also prompted speculation about what Elhedery might do to address the lack of obvious growth-driving business areas at HSBC.
Analysts expect its revenues will rise just 3.6 per cent over the coming three years, below regional peers such as Standard Chartered or global ones such as Citigroup.
Options include selling its asset management operation, whose $748bn of assets is considered sub-scale for a global bank, or its insurance business. Conversely, it could look to bulk up in those businesses through acquisition, which would usefully dilute the bank’s dependence on net interest income.
There is also room to grow HSBC’s business in the UK, where the bank trails rivals such as Lloyds and NatWest. Elhedery plans to spend some of the savings from exiting less profitable areas such as Germany on winning customers from UK peers, according to people inside the bank.
But bigger strategic moves would almost certainly need to await the arrival of a new HSBC chair after Tucker, an insurance executive, leaves in September to chair Hong Kong insurer AIA.
The 67-year-old, the first outsider to chair HSBC, has had an outsize influence during his eight-year tenure and his decision to appoint Quinn’s successor has landed Elhedery in the unusual position of being a new CEO facing an imminent change of chair.
By the time a new chair starts in early 2026, it will be one year since Elhedery’s restructuring plan was put into effect. Whoever sits down for that first meeting with HSBC’s senior leadership team may have the same question as one adviser close to the bank: “Is there a strategy for growth, or do you want to run the bank as efficiently as you can?”
Additional reporting by Emma Dunkley and Louis Ashworth in London and Kaye Wiggins in New York
