Strategic Initiatives

As discussed in our 2019 Form 10-K, in February 2020, our Board of Directors approved a strategic plan to restructure our operations ("Restructuring Plan") in alignment with HSBC’s global strategy to refocus our wholesale operations to better serve our international corporate clients and restructure our retail operations to better meet the needs of globally mobile and affluent clients. We will also streamline our functional and operations support model by removing duplication and reduce the size of our balance sheet to better align with the scope and scale of the U.S. opportunity. We previously disclosed that we expect to incur pre-tax charges in connection with this Restructuring Plan over a two year period of approximately $350-$400 million ($265-$305 million after-tax). In addition, during the second quarter of 2020, we determined we would incur additional pre-tax charges of approximately $60-$80 million ($45-$60 million after-tax) as we continued to progress our Restructuring Plan. The following table presents a summary of the total pre-tax charges we expect to incur by reportable segment:



	Expected Charges in Connection with Restructuring Plan
	Minimum		Maximum
	(in millions)
Wealth and Personal Banking	$	32	$	34
Commercial Banking	8		10
Global Banking and Markets	120		140
Corporate Center⁽¹⁾	250		296
Total	$	410	$	480


⁽¹⁾	Includes restructuring charges primarily related to lease impairment and other related costs, as well as severance costs associated with certain centralized activities and functions.

Late in the second quarter of 2020, we decided to lift the pause we had put in place in March on staff reductions as coronavirus ("COVID-19") restrictions have begun to ease and some businesses began to re-open. Our Restructuring Plan is moving forward as planned, including consolidation of our retail branch network and wholesale and retail middle and back office functions, each under a single operations structure, and the creation of our Wealth and Personal Banking business which was completed in the second quarter. During the three and six months ended June 30, 2020 we recorded pre-tax charges in connection with our Restructuring Plan totaling $49 million and $160 million, respectively. While we remain committed to our multi-year strategic plan to re-profile our business, the timing of the strategic actions as outlined in our 2019 Form 10-K may be re-sequenced or delayed beyond 24 months as the circumstances around the COVID-19 pandemic continue to develop. We continue to re-assess our strategic plan and may take additional actions in future periods.

The following table summarizes the changes in the liability associated with our Restructuring Plan during the three and six months ended June 30, 2020:



	Severance and Other Employee Costs⁽¹⁾		Lease Termination and Associated Costs⁽²⁾			Total
	(in millions)
Three Months Ended June 30, 2020
Restructuring liability at beginning of period	$	9	$	24		$	33
Restructuring costs recorded during the period	13		—			13
Restructuring costs paid during the period	—		(1		)	(1		)
Restructuring liability at end of period	$	22	$	23		$	45

Six Months Ended June 30, 2020
Restructuring liability at beginning of period	$	—	$	—		$	—
Restructuring costs recorded during the period	22		24			46
Restructuring costs paid during the period	—		(1		)	(1		)
Restructuring liability at end of period	$	22	$	23		$	45

⁽¹⁾

Severance and other employee costs are included in salaries and employee benefits in the consolidated statement of income (loss). The majority of these costs were reported in the Wealth and Personal Banking and the Global Banking and Markets business segments for segment reporting purposes. Not included in these costs are allocated severance costs from HSBC Technology & Services ("HTSU") discussed further below.


⁽²⁾	Primarily includes real estate taxes, service charges and decommissioning costs. Lease termination and associated costs are included in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Corporate Center business segment for segment reporting purposes.

In connection with the restructuring costs reflected above, during the first quarter of 2020, we determined that we would exit approximately 60 branches (in addition to the approximately 20 branches for which we disclosed plans to exit in the fourth quarter of 2019). As a result, we recorded impairment charges during the first quarter of 2020 to write down the lease right-of-use ("ROU") assets, net of estimated sublease income, by $52 million (was reduced by $6 million during the second quarter of 2020) and to write down the leasehold improvement assets associated with these branches by $16 million based on their estimated remaining useful lives. These impairment charges are reflected in occupancy expense, net in the consolidated statement of income (loss) and were reported in the Corporate Center business segment for segment reporting purposes. The branches targeted for exit under the Restructuring Plan were closed by the end of the second quarter of 2020.

In addition, during the second quarter of 2020, we recorded $10 million of trading losses associated with the exit of certain derivative contracts as part of our Restructuring Plan. These losses are included in trading revenue in the consolidated statement income (loss) and were reported in the Global Banking and Markets business segment for segment reporting purposes.

Our Restructuring Plan also resulted in costs being allocated to us from HTSU which are reflected in support services from HSBC affiliates in the consolidated statement of income (loss). During the three and six months ended June 30, 2020, we recorded $32 million and $42 million of allocated costs from HTSU, primarily including severance costs and, in the year-to-date period, contract cancellation and equipment removal charges associated with the branch exits discussed above. These costs were reported in the Corporate Center business segment for segment reporting purposes.