Weekly News Digest 21 February 2020

Details of the restructuring plan that HSBC promised at the end of last year have emerged: the underlying purpose is to shave $4.5bn off the cost base over the next three years. The announcement accompanied the latest round of quarterly results for the group, which revealed that profits for 2019 came to $13.35bn before tax, a year-on-year fall of one third, attributed in the main to write-offs in European commercial and investment banking activities. Asia, from whence the bulk of its revenue comes, is now more than ever the focus of future growth for the firm. The most obvious consequence is a staff reduction of 35,000, mostly through "natural attrition", bringing the employee count down to around 200,000 worldwide. "I know there might be disappointment among the workforce, but I'm not sure management have much of a choice," one unnamed investor told Reuters. "I think once they do this, they are going to have to do it again. While this low interest rate environment persists, they will have to keep hacking away at the cost base. It's going to be relentless." The elephant in the room? This sweeping plan comes from an interim chief executive, Noel Quinn, whose appointment has yet to be finalised by the board of directors.

In the United States, a desire to provide full-service financial provision has led vehicle loan provider Ally Financial to buy CardWorks, a credit card and consumer finance lender which specialises in the non-prime segment. The deal, made up of cash and stock, is worth $2.65 billion, but inevitably exposes Ally to more risk. However, the potential to scale is clearly outweighing those considerations as, in the words of Ally's chief executive, "this acquisition serves as an important milestone in Ally's evolution to be a full-service financial provider for our customers". CardWorks has a reported $2.9 billion in deposits and $4.7bn of assets.

As successive rounds of quarterly and annual results have made abundantly clear, it appears that European banks need to consolidate if they are to gain the scale required to make thin margins count. As continent-wide regulations and standards take hold – and fintechs are newly empowered by the revised Payments Services Directive (PSD2) – it is, if anything, strange that we do not hear more banking merger and acquisition news from European banking. This week, however, one of Italy's biggest banks, Intesa Sanpaolo, has announced a bid worth $5.3 billion for smaller rival UBI with a view to completing the deal by year's end. To avoid running afoul of competition regulations, the merger would also involving selling up to 500 branches to BPER Banca.

An intriguing skirmish in Australian payments this month: last week's comments from the country's central bank governor, suggesting that the regulator might well mandate merchant choice routing (MCR) for contactless debit card payments, have drawn a swift response from Visa. The cards giant has noted that security might be compromised for both issuers and customers alike should transactions be routable by law through the domestic EFTPOS system rather than the global network rails that the majority of such transactions are currently using: "from early fraud detection and liability protections to setting limits on everyday spend, these services are not necessarily network agnostic and often depend on transactions being routed over a specific network ", Visa said, according to a report from iTnews in Sydney.

"Singaporeans have multiple options when it comes to making payments via mobile phone, although the market remains untapped to its fullest potential," notes Verisk Financial Research's new country report on cards and payments in Singapore. Regulators and industry players continue to come up with platform-innovations such as SGQR (an interoperative QR Code standard) and a Unified POS, paving the way for super-apps. Now, Singapore's ride-hailing app Grab, already active in financial services, is reportedly teaming up with MUFG to leverage pooled abilities for loan and insurance offerings. The Japanese bank, bringing its credit evaluation, regulatory and collections expertise to the deal, is planning to invest over $700 million in return for a stake in Grab, according to Nikkei, exclusively reporting on the as-yet-unannounced agreement.

To end, links to some other stories of interest this week...

Brazil: Central bank to launch instant payments in November
France: Credit Agricole Q4 results beat estimates
UK: Lloyds Q4 results see annual profits fall
UK: RBS results overshadowed by name change to NatWest
US: Americans have $21bn in unused gift cards and store credits