HSBC Holdings PLC on Tuesday signalled it would embark on a pandemic-induced overhaul of its business model, seeking to flip its main source of income from interest rate to fee-based businesses. Reporting a 35% tumble in quarterly profit, Europe’s largest bank also accelerated plans to shrink in size, targeted deeper cost cuts, and said it will resume conservative dividend payments when able. The planned business model changes mark one of the biggest shifts in strategy to date from HSBC, which has long touted its ability to generate interest income from its more than $1.5 trillion in customer deposits. But with interest rates worldwide now rock bottom and even turning negative, the bank is struggling to charge more for loans to borrowers than it pays out to depositors and it warned net interest income would remain under pressure. Earlier this year the bank announced it would merge its wealth and personal banking business in a bid to cross-sell more lucrative products across a wider section of its huge customer base. Now the bank is signalling it may go further and start charging for much more basic products such as standard current accounts that customers in some markets such as Britain expect to be free. It will also look at how it can bring in more fee income from corporate customers, having done well helping clients raise money through bond and equity financing during the COVID-19 crisis. “We will have to look at charging for basic banking services in some markets, because a large number of our customers in this environment will be losing us money,” Chief Financial Officer Ewen Stevenson told Reuters. That could prove a tough pill to swallow in some markets, industry experts said. “It will need to be done carefully to not damage the trust of the brand or get customers to switch, especially in countries where competitors offer the service for no charge,” said Sudeepto Mukherjee, senior vice president, financial services, at consulting firm Publicis Sapient. The bank said it would set out further details on increasing fee income when it reports full-year results in February. The announcement of the restructuring plans helped HSBC shares climb more than 6.5%, although they have still lost nearly half their value year to date. Underscoring its challenges, the bank’s third-quarter revenue fell to $11.9 billion, down 11% from a year earlier. Its 35% slide in pretax profit to $3.1 billion beat a consensus estimate of $2.07 billion as HSBC flagged an easing in bad loan provisions. “While the outlook for impairments still remains highly uncertain... HSBC delivered strong third-quarter results in overall terms and the upbeat outlook commentary in terms of strategy execution is reassuring,” said John Cronin, an analyst at Dublin-based brokerage Goodbody. HSBC now expects losses from bad loans to be at the lower end of the $8-$13 billion range it set out earlier this year. “There are encouraging signs that the credit assumptions we have got are holding up, the government support we are seeing for the corporate sector has bought them time,” Stevenson told investors on a conference call. RESTRUCTURING REVVED UP Faced with fewer options to bolster revenue growth, Asia-focused HSBC has been looking to reduce costs globally and in June resumed plans to cut around 35,000 jobs it had put on ice after the coronavirus outbreak. The bank has no immediate plans to cut more jobs, Stevenson told Reuters, but that could happen as its transformation plans continue. HSBC said on Tuesday it plans to reduce annual costs to below $31 billion by 2022, a more ambitious target than it set out in February and well below the operating expenses of $42.3 billion it reported in 2019. It will also accelerate the transformation of its U.S. business, where it has long struggled to compete with much bigger players, and will provide an update at its 2020 results in February. HSBC, which in common with other British lenders stopped paying dividends earlier this year at the request of regulators, said it would communicate a revised dividend policy in February. Analysts and investors fear the lender could cut payouts in the long run. “When we start paying distributions again, we’ll start conservatively and build from there,” Stevenson said on the conference call.