Strategic Initiatives

9 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

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	$	24	$	28
Commercial Banking	8		10
Global Banking and Markets	90		110
Corporate Center⁽¹⁾	288		332
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.

Our restructuring plan is moving forward, including consolidation of our wholesale and retail middle and back office functions, each under a single operations structure, simplification of our support service functions, the exit or transfer of certain derivative contracts, and the consolidation of our retail branch network and creation of our Wealth and Personal Banking business both of which were completed in the second quarter. During the three and nine months ended September 30, 2020, we recorded pre-tax charges in connection with our Restructuring Plan totaling $84 million and $244 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 coronavirus ("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 nine months ended September 30, 2020:


	Severance and Other Employee Costs⁽¹⁾		Lease Termination and Associated Costs⁽²⁾		Total
	(in millions)
Three Months Ended September 30, 2020
Restructuring liability at beginning of period	$	22	$	23	$	45
Restructuring costs accrued during the period	13		4		17
Restructuring costs paid during the period	(12)		(3)		(15)
Restructuring liability at end of period	$	23	$	24	$	47







Nine Months Ended September 30, 2020
Restructuring liability at beginning of period	$	—	$	—	$	—
Restructuring costs accrued during the period	35		28		63
Restructuring costs paid during the period	(12)		(4)		(16)
Restructuring liability at end of period	$	23	$	24	$	47

⁽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. 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.

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 (which 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. The branches targeted for exit were closed by the end of the second quarter of 2020. During the third quarter of 2020, we recorded additional impairment charges of $7 million to write-down the lease ROU assets associated with certain office space that we determined we would exit. 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.

In addition, during the three and nine months ended September 30, 2020, we recorded $47 million and $57 million, respectively, 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. During the third quarter of 2020, as part of our Restructuring Plan, we also began to transfer interest rate derivative contracts associated with Fixed Income activities to HSBC Bank plc. These activities are being consolidated in and operated from HSBC Bank plc to better utilize HSBC Group's global scale, which allows us to record revenue as a business introducer and hold fewer assets on our balance sheet. Transfers of interest rate derivative contracts with a notional value of $38.1 billion were completed during the third quarter of 2020 with the remainder of these contracts with a current notional value of up to $174.2 billion expected to be largely completed during the fourth quarter of 2020. The transferred derivatives were substantially fully collateralized which resulted in an immaterial impact on our consolidated balance sheet.

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 nine months ended September 30, 2020, we recorded $13 million and $55 million, respectively, of allocated costs from HTSU, primarily severance costs as well as contract cancellation, equipment removal and other costs associated with the office space consolidation and branch exits discussed above. These costs were reported in the Corporate Center business segment.