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HSBC says business as usual in China despite blacklist reports; CEO departs

HSBC Holdings PLC announced the departure of CEO John Flint after less than 18 months in the role, and also said it was business as usual in mainland China after reports that the bank had been added to a list of "unreliable" foreign companies.

Flint's exit from the lender was "mutual," according to Chairman Mark Tucker. "In the increasingly complex and challenging global environment in which the bank operates, the board believes changes are needed to make the most of the significant opportunities ahead of us," he said.

Tucker also underscored HSBC's commitment to China following media reports that suggested HSBC has been included in the blacklist of foreign companies because of its alleged role in the arrest of Meng Wanzhou, finance director of Huawei Technologies Co. Ltd. The bank is reported to have given information to U.S. prosecutors that helped to build a case against Meng, who faces charges of bank and wire fraud as well as accusations that Huawei breached U.S. sanctions against Iran.

Tucker said during a second-quarter earnings call that HSBC's regular business operations in China are continuing as normal.

"We've been in China for over 153 years, and we have a clear and long-term commitment to China. We're actively participating in the opening of China's financial markets. We're actively participating in the build and load initiative. We're actively participating in the the development of the Greater Bay Area. We're actively participating in the growth of green finance. And we look forward to continuing to support China's growth and economic prosperity," he said during the call, adding that the bank would not comment on speculation.

Job cuts, other challenges

Noel Quinn, previously CEO of global business banking at HSBC, has been appointed interim CEO, and the bank is now considering both internal and external candidates to replace Flint, Tucker said.

Looking ahead, one of HSBC's most pressing tasks is to fix the issue of persistently low returns in its U.S. business, according to CFO Ewen Stevenson.

The U.S business made a 2.5% return on tangible equity in the first half of 2019, compared with 2.7% in the 2018 full year. The bank had set a target of bringing this up to 6% by 2020, but now acknowledges that it will miss this goal.

"The U.S. revenue outlook has become more challenged in recent months. There's been a sizable shift in U.S. dollar interest rate expectations, so we're now not expecting to achieve a 6% return on tangible equity in 2020. But we recognize that current returns in the U.S. are not acceptable, and it remains a firm priority of ours to improve these," Stevenson said.

Stevenson also said HSBC will cut its headcount by around 2%, with the layoffs targeted at senior levels of the organization. The bank employs almost 240,000 people and the program is aimed at reducing the wage bill by approximately 4%.

M&A not the solution

Neither divestiture nor M&A are the answers to the U.S. business' woes, according to Stevenson.

"I don't think it's a scale issue. We don't think we need M&A to solve our returns problem in the U.S. and nor do we think the market will be particularly supportive of M&A. Equally, we think it's critical that we do have a meaningful presence in the U.S. It's critical to our global business, and therefore I don't think you should expect us to be reducing our presence in the U.S.," he said.

At a group level, HSBC made a first-half pretax profit of $12.41 billion; an increase of 15.8% year over year. The bank also announced a second interim dividend for 2019 of 10 cents per ordinary share in respect of 2019, to be paid Sept. 26.