Coverage: HSBC to shed 50,000 jobs

HSBC is under pressure from investors and to counter that pressure, it’s cutting jobs and pulling back from some markets. The bank is trying to cut costs in order to stay alive.

The New York Times story by Chad Bray had these details about the new CEO’s changes:

Like other global institutions, HSBC, Europe’s largest bank, has been under severe pressure since the 2008 financial crisis to cut costs, meet stringent new regulatory demands and satisfy restless shareholders.

To that end, the British bank said on Tuesday that it would shed as many as 50,000 of its approximately 250,000 jobs as it sells several underperforming businesses, reduces the size of its global investment banking business and tries to cut billions of dollars in costs.

The latest moves are part of HSBC’s major strategic revamping announced by Stuart T. Gulliver, the bank’s chief executive, who took the helm in 2011.

As part of the newest changes, HSBC said it would increase its investment in Asia, where it generates more than half of its earnings. The bank has been evaluating whether to move its headquarters to Hong Kong from London, and it said it would complete that review by the end of the year.

The Bloomberg story by Alfred Liu and Richard Partington pointed out that the CEO is looking to win favor with investors with the restructuring:

Chief Executive Officer Stuart Gulliver, 56, is looking to restore investor confidence in a bank battered by scandals and surging compliance costs. Since taking over in 2011, he’s announced more than 87,000 job cuts, exited about 78 businesses and reduced the number of countries the bank operates in.

“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 ($6 billion), including HSBC shares, at Premier Fund Managers Ltd. in Guildford, England. “A lot of it feels like it was broadly as expected.”

The shares fell 0.9 percent to 613.70 pence in London trading. They are up about 0.8 percent this year, trailing a 7 percent gain at Standard Chartered Plc, the other U.K. bank generating most of its earnings in Asia.

Just months after taking over, Gulliver announced some 30,000 job cuts to trim costs by as much as $2.5 billion. In the latest round, as many as 21,000 of the cuts will be lost in a push for digital banking, automation and branch closures. In the U.K., as many as 8,000 jobs will be cut, Gulliver said.

Under his plan, the CEO will cut risk-weighted assets by about $290 billion and target a return on equity, a measure of profitability, of more than 10 percent. The bank lowered its ROE target to 10 percent in February from as much as 15 percent. In 2014, the measure was 7.3 percent.

Paul J. Davies wrote for The Wall Street Journal about the details of HSBC’s plan to shift its business:

Despite the headlines of 50,000 job cuts, the target is for costs to come out flat in three years’ time compared with 2014, adjusted for the planned sale of businesses in Brazil and Turkey. The boost in returns from just over 7% in 2014 is to come from improving the U.S. and Mexican units and from growing commercial banking and to a lesser extent retail banking, mostly in Asia.

This plan will see HSBC increase risk-weighted assets in commercial banking alone by anywhere from 30% to 70% over the next three years. This is much faster than expected economic growth.

At the same time, it expects to grow investment banking revenues by mid-single digit percentages each year while slashing risk-weighted assets almost one-third. Big cuts might come from using smarter models, or using central clearing for derivatives, but that still looks a tough target.

Even then HSBC’s targeted returns are beaten by the best local banks in many countries. HSBC insists the fight to remain global is worth it. It claims $22 billion, or 40%, of its revenues wouldn’t be accessible without its global network.

Emma Dunkley wrote for The Financial Times that the bank will close branches and that it will change its brand in the U.K.:

Stuart Gulliver, group chief executive, announced on Tuesday that the UK retail bank would operate under a new brand, which has yet to be decided.

Like other UK banks, HSBC needs to ringfence its UK business — separate its consumer deposits from its investment banking activities — by 2019 to meet new regulations. The bank said it would seek to put as many of its UK operations as possible into the new entity.

Mr Gulliver said the rebranded retail bank could ultimately be sold depending on how ringfencing was implemented.

“I am surprised they are putting more assets in [the ringfenced bank] than less,” said Mr Ghose of Citibank. “They are creating a business that is self-sufficient and standalone should they wish to consider options for listing or selling it.”

Some analysts said HSBC’s decision to consider moving its headquarters abroad was a nod to the increasing bank levy in the UK, suggesting the lender could leave if punitive taxes on the sector were not addressed.

HSBC is definitely struggling to figure out the way forward. Many banks are trying to comply with new regulations. It remains to be seen if the moves are enough for investors.