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Business and finance update 28th October 2024

HSBC’s major overhaul

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Good morning. Today we're talking about HSBC’s new structure, Thames Water’s lifeline and government debt rule changes.

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HSBC’s major overhaul

HSBC announced a major transformation, six weeks after the appointment of a new CEO, Georges Elhedery. The restructuring will divide its operations into eastern and western markets. This move is aimed at streamlining operations, reducing costs, and navigating the complexities of the global geopolitical landscape. Key changes include the creation of a standalone UK division and a Hong Kong division to oversee operations in Asia and the Middle East. The bank will also establish a new global commercial and institutional banking business and an international wealth and premier banking business. This restructuring reflects HSBC's efforts to balance its global ambitions with the increasing geopolitical tensions between China and the West. HSBC makes most of its profits in Asia, but it remains headquartered in London, giving western leaders an opportunity to exert pressure over its relationship with the ruling Communist party in China. The bank has faced criticism in the past for its approach to China, particularly regarding its handling of the Hong Kong protests.

Thames Water lifeline

Thames Water, the UK's largest water company, has secured a crucial £3bn emergency loan to stave off collapse. This lifeline, backed by a consortium of creditors, will provide the company with the necessary funds to continue operations until October 2025. However, the company's financial woes are far from over. Thames Water is burdened by a significant debt pile on track to reach £17.9bn by the end of next March. To address this, the company is planning to implement a comprehensive restructuring plan, which may involve significant cost-cutting measures and potential job losses. Additionally, customers of Thames Water can expect substantial increases in their bills. The company has already indicated plans for significant tariff hikes to fund essential infrastructure upgrades and debt reduction. In July, the company had told water regulator Ofwat that it wanted to increase annual bills by 23% between 2025 and 2030. Since then, Thames has said it needed to raise them by 53%. Ofwat will make a final determination on how much Thames Water can put up bills and spend at the end of this year.

Debt rule relaxation

Ahead of the Labour government’s first Budget for 14 years this week, the Chancellor Rachel Reeves announced that she will relax the government's fiscal rules to allow her to increase borrowing by around £50bn. The move comes as the government seeks to invest in infrastructure and public services to boost economic growth. The relaxation of fiscal rules has been supported by leading economists and international organisations like the IMF which said public investment should be protected and was "badly needed" in the UK. The chancellor said the second fiscal rule, under which day-to-day spending must be funded from government revenue rather than borrowing, would be unchanged. Speculation is growing over what taxes will be changed at the Budget with an increase in National Insurance rate for employers and a lowering of the threshold for when employers start paying the tax, the most likely. Both measures combined would raise about £20bn for public services including the NHS.

Elsewhere...

Succession planning: Walt Disney said it would announce another replacement for long time CEO Bob Iger in early 2026.

Comms confusion: The Chancellor will not unveil new freeports in the Budget on Wednesday, despite a government announcement on Friday saying she would.

Burger comeback: McDonald's is resuming sales of its Quarter Pounder burgers in all of its US restaurants after ruling out its beef patties as the source of an E. coli outbreak that left at least one person dead and dozens of others ill.

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$79.1 million

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