The FINANCIAL — HSBC Holdings PLC on June 9 said it would reduce its head count by up to 50,000 as part of a global overhaul to improve the profitability of its sprawling operations, according to Nasdaq.
The bank said that it would refocus its business on Asia and try to squeeze out up to $5 billion in annual cost cuts by 2017. The bank is slicing the size of its investment bank, exiting Turkey and ratcheting back its franchise in Brazil. The moves would reduce the workforce at Europe’s largest bank by about 19% over the next two years.
Investor reaction to the strategic plan was mooted, with shares broadly flat in London early trading. “As expected this was not the massive shake-up some investors had been hoping for,” analysts at Bernstein Research said in a note.
The planned cuts come as HSBC Chief Executive Stuart Gulliver takes his second stab at refocusing the London-based lender since taking the top job in 2011. The executive has spent much of the past five years trying to prune HSBC’s global presence and make the bank easier to manage. But the strategy was hindered by ballooning compliance costs, low interest rates and a slowdown in Asia. The bank recently had to lower a key profitability target, sparking some major investors to call for Chairman Douglas Flint to be replaced soon and some analysts to suggest the bank should be broken up.
Faced with these challenges, HSBC’s response is to retrench further.
“We recognize that the world has changed and we need to change with it,” Mr. Gulliver said. “I am confident that our actions will allow us to capture expected future growth opportunities and deliver further value to shareholders.”
Mr. Gulliver defended the bank’s global model saying that operating a large franchise offered significant cost savings.
HSBC said it would reduce the risk-weighted assets of the global banking and markets division to less than a third of group total. HSBC said that it would pivot its business to refocus on its Asian roots as it looks to raise its return on equity, a key measure of profitability, beyond 10% by 2017, up from 7.3% last year. The bank will invest in its Chinese operations and will expand its Asian asset management and insurance businesses.
Mr. Gulliver had previously singled out HSBC’s Brazilian, Turkish, U.S. and Mexican units for a radical overhaul. On Tuesday the bank said it would sell its operations in Turkey and Brazil but still retain a presence in Brazil to offer services to large corporate clients. It plans to “improve returns and gain scale” in Mexico. In the U.S. the bank will focus on international customers, and less on domestic operations. “We will obviously need to turn the U.S. business around,” Mr. Gulliver said. However, the access to dollar funding and global clients means it is still a key country for the bank.
The bank said the sale of Turkey and Brazil would reduce its head count by about 25,000 and that a further 22,000 to 25,000 jobs would be chopped by 2017 through cost reductions across the group. The automation of operations will help cut 12,000 to 13,000 of those jobs, the bank said.
On June 9 the bank said it would set up a U.K. ring-fenced bank, separating its British retail operations from any investment-banking activities. HSBC executives had been concerned about U.K. rules requiring the segregation, which sparked speculation that the lender would look to spin off its British retail bank. Mr. Gulliver said it was too early to determine whether it was worth spinning-off their U.K. retail operations entirely.
HSBC also said that by the end of the year it would complete a review of the possibility of relocating its headquarters away from London. The bank has been considering a relocation to reduce the impact of a U.K. tax on bank balance sheets and escape a European clampdown on bonuses. On Tuesday Mr. Gulliver said that no decision had yet been taken. Moving the headquarters would involve shifting 250 jobs out of London and take about two years, he added.
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