HSBC Holdings Plc, Europe\’s largest bank, intends to eliminate as many as 25,000 jobs then sell operations in Turkey and Brazil to help restore profit growth.
Under a three-year plan, HSBC will cut full-time employees by 22,000 to 25,000, or about 10 per cent, it said in a presentation to investors on its website on Tuesday. The sale of companies will lower headcount by a further 25,000, helping cut annual costs by US$4.5 billion to US$5 billion after 2017. The bank left its profitability target unchanged.
Chief Executive Officer Stuart Gulliver, 56, looks to restore investor confidence inside a bank battered by a series of scandals and surging compliance costs. Since overtaking in 2011, he\’s announced more than 87,000 jobs cuts, exited about 78 businesses and reduced the number of countries the bank operates by 15 to 73.
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\”HSBC is a big bank to move and they\’re definitely moving in the right direction,\” said Chris White, who helps oversee about 3.9 billion pounds (US$6 billion), including HSBC shares, at Premier Fund Managers Ltd. in Guildford, England. \”A large amount of it feels like it was broadly as expected.\”
The shares fell 1.1 per cent to 612.8 pence at 11:39 a.m. in London. They are up about 0.7 percent this year, trailing a 6.8 percent gain at Standard Chartered Plc, another U.K. bank generating most of its earnings in Asia.
Just months after overtaking, Gulliver announced some 30,000 jobs cuts to trim costs up to US$2.5 billion. Within the latest round, as much as 21,000 from the cuts will be lost inside a push for digital banking, automation and branch closures. Within the U.K., up to 8,000 jobs is going to be cut, Gulliver said.
Under his plan, the CEO intends to cut risk-weighted assets by about US$290 billion, together with a reduction in the securities division to under one-third of the group, and target a return on equity, a measure of profitability, in excess of 10 per cent. The financial institution cut its ROE target to 10 per cent in February from as much as 15 per cent. In 2014, the measure was 7.3 per cent.
At the investment bank, HSBC plans to cut RWAs with a net US$130 billion, or 31 percent, while \”keeping costs flat.\” The global banking and markets division were built with a 6 percent profit grow in the first quarter, as revenue from foreign-exchange rose.
The savings program will definitely cost US$4 billion to US$4.5 billion through 2017, according to the statement.
\”We recognize that the world has changed and that we need to change by using it,\” Gulliver said within the statement. \”I\’m confident that our actions allows us to capture expected future growth opportunities and deliver further value to shareholders.\”
HSBC, founded 150 years back in Hong Kong, will also sell operations in Turkey and Brazil, while stepping up investment in Asia, expanding asset management and insurance and concentrating on places including China\’s Pearl River Delta and areas such as the internationalization of the yuan.
Jonathan Tyce, a senior banks analyst at Bloomberg Intelligence, asserted while it is a \”good cost number,\” the short list of disposals \”may have surprised just a little.\”
\”Margins are higher\” in Asia,\’\’ Tyce said in an interview on Bloomberg Television from London .? \”Everybody\’s all over Asia. This is all about improving capital efficiency. You can completely understand the motivation.\”
With his strategy update, Gulliver needs to convince investors that he\’s the right man to guide HSBC. At Deutsche Bank AG, Germany\’s largest lender, co-CEO Anshu Jain announced his resignation on Sunday, just two months after presenting a strategic update that investors considered too weak.
\”Gulliver is not an idiot,\” said Chris Wheeler, an analyst at Atlantic Equities working in london. \”This is quite the opposite to Deutsche Bank as there is tonnes of granularity of in which the cost cutting can come, how they\’re achieving it and why they\’re getting out of countries.\”
HSBC originates under pressure to lessen costs and reverse a decline in profit following a year that saw the bank being fined for manipulating currency markets and embroiled inside a tax-avoidance scandal in Switzerland.
The bank a week ago agreed to pay 40 million Swiss francs (US$43 million) to close an investigation by Geneva prosecutors into allegations of cash laundering at its Swiss private bank.
In February, Gulliver pledged that underperforming units would face \”extreme solutions\” after full-year earnings fell 17 per cent and the lender scrapped four-year-old profitability targets, citing a tougher regulatory environment.
HSBC is probably the hardest hit by regulator scrutiny, using the Bank of England forcing the largest lenders to split up their consumer from riskier investment banking activities by 2019. It\’s also been hurt by an increasing bank levy, costing lenders about 5.3 billion pounds within the next five years.
The bank said earlier this year that it\’s reviewing whether or not to re-domicile from London because of rising tax and regulatory costs. It\’ll complete its headquarters review after 2015, according to the statement.
\”It will be a mistake that HSBC flees the country,\” Bill Blain, a strategist at Mint Partners, said within an interview with Jonathan Ferro on Bloomberg Television on Tuesday. \”This is actually a pretty good place for banks to become.\”