HSBC has announced plans to cut almost 50,000 jobs from its payroll, axe its investment bank and shrink its assets by $290bn (€257bn) in an effort to improve its sluggish performance.
HSBC is Europe’s biggest bank.
The announcement to the Hong Kong stock exchange came ahead of a presentation to investors and analysts when chief executive Stuart Gulliver will give more detail on his second major strategic plan since he took the helm at the start of 2011.
The job cuts, which will affect almost a fifth of the bank’s workforce, involve 25,000 staff from the expected sales of the lender’s Brazil and Turkey units.
Another 22,000-25,000 jobs will go from the consolidation of IT and back office operations and branch closures.
It is thought 8,000 jobs could be impacted in the UK, where HSBC has around 48,000 employees.
The company also employs more than 400 people in Ireland. It is not yet known if they will be affected by the job losses.
The cuts are the latest in a series of heavy staff reductions and will leave the bank with around 208,000 full-time equivalent staff, down from 295,000 at the end of 2010 and 258,000 at the end of 2014.
However the cuts, to be completed by 2017, will be followed by some hiring in growth businesses and the bank’s compliance division, HSBC said without providing details on how many people will be recruited.
HSBC also said today it will shrink the global banking and markets division to less than one third of HSBC’s $2.6 trillion balance sheet from its current level of around 40%, a significant but expected shift for the lender.
Investors had been calling for more radical cuts at the global banking and markets division that Gulliver previously ran for five years, whose returns have suffered in tough market conditions.
The bank also confirmed the planned sale of its units in Turkey and Brazil, adding it would keep a presence in the latter to serve corporate clients.
The new strategy at HSBC is not solely about cuts though, with the bank saying it will target growth in Asia by expanding its insurance business and its presence in China’s Pearl River Delta region.
The bank also set out the 11 criteria it will use to evaluate whether to move its headquarters from London to Asia, likely Hong Kong. They include factors such as economic growth, tax, and government support for the growth of the banking system.
It will complete the review of the possible move by the end of the year, HSBC said.
HSBC’s Global Overhaul
HSBC Holdings PLC has announced a global revamp in a bid to increase profitability and justify its continuing presence as a global universal bank. The new strategy involves a significant cut in headcount, a smaller investment bank and significant cost cutting. Here are the key points.
As of December 2014, HSBC had around 258,000 full-time employees. Over the next couple of years, the U.K. bank hopes to cut around 50,000 from this total. Around 25,000 will be cut due to cost reductions, while the exits from Brazil and Turkey will also contribute a significant amount.
The bank’s return on equity was 7.3 percent over 2014. By 2017, HSBC is targeting RoE of over 10 percent. This isn’t a new figure. In February Chief Executive Stuart Gulliver cut the bank’s target from more than 12 percent. However, the timeframe is new, with the target date moving to 2017 from 2018.
Management aims to reduce risk-weighted assets by $290 billion, around a quarter of the group’s total. A third of this reduction will come from its trading and investment banking business — Global Banking & Markets — which HSBC aims to cut by $140 billion, by cutting down credit positions, long-dated rates and low-returning loan portfolios. GB&M housed $516.1 billion in RWA as of year-end 2014.
The bank hopes for $4.5 billion to $5 billion in cost savings by 2017. Much of this will come via head count reduction. However HSBC will also spend $1 billion on improving its “digital and automation programs”, move staff to cheaper locations, improve IT, and cut down its retail branch network.
The board of HSBC has 204 days – at most – to decide whether it wishes to remain in the U.K. or redomicile, potentially to Hong Kong. The current review is set to be completed by the end of 2015. Much of the commentary around HSBC’s decision has focused on the U.K. bank levy, which cost HSBC $1.1 billion in 2014, more than any other bank, and is expected to rise to $1.6 billion this year.
However, within Tuesday’s investor presentation, HSBC was keen to stress that the decision was about more than just the bank levy. The following criteria were listed for the bank’s future domicile: ”Economic importance and future growth; Scale of existing HSBC presence; Highly competitive economy; Long-term stability; High Transparency International score; Ability to attract and retain top talent; Robust commercial environment, including enforceability of relevant laws; Tax system; Government policy in support of growth and development of financial services sector; Robust regulatory environment that supports Global Standards; Financial impact for the Group.”
In May 2011, Gulliver presented the bank’s group strategy, where he fleshed out HSBC’s global presence. Since then, its share price has fallen 4.32%. In Tuesday’s presentation, investors may have been expecting more. In U.K. morning trading as of 10:28 local time, the share price is down 0.44 percent
Analysts at Bersnstein said: “HSBC – in its release today – has failed to bring out anything radically different from moves which have been widely expected for some months now.”
A Berenberg note said: “The key will be the market believing in the delivery especially considering the history on targets and costs.”
The M40 motorway connects London to Birmingham, the U.K.’s second city, and it will be busy ferrying HSBC employees to their new home. In the presentation HSBC confirmed that it will set up a ring-fenced U.K. bank headquartered in Birmingham, which will house 26,000 staff. It will also shed its well-known HSBC retail brand, keeping the title for its non-ring fenced global business. And what will the Birmingham-based entity be called? No decisions yet, but a departure from the HSBC brand might help with any future spin-off.