LI, Tao @ Hong Kong

Clients visit the vault in a secured area inside the HSBC building in Hong Kong. The lender will cut jobs and close offices, seeking to lower costs by about a tenth to invest in faster-expanding economies and prepare for stricter capital rules. Paul Hilton / Bloomberg

Job cuts and office closures planned

HSBC Holdings Plc, Europe’s biggest bank by market value, set targets to save costs of $2.5-3.5 billion within the next two years in a bid to reach a cost efficiency ratio target of 48-52 percent by 2013.

The lender will cut jobs and close offices, seeking to lower costs by about a tenth to invest in faster-expanding economies and prepare for stricter capital rules.

It may also exit unprofitable units among its 87 national subsidiaries, cut head office jobs and conduct a strategic review of its US cards business, the bank said on Tuesday.

During a conference call, Chief Executive Officer Stuart Gulliver said HSBC “clearly has a cost problem”.

“The (cost-saving) program is not about shrinking the business but about creating capacity to re-invest in growth markets and to provide a buffer against regulatory and inflationary headwinds,” said Gulliver.

The cost-saving initiatives came after HSBC’s lackluster performance in the first quarter, during which the lender posted a pre-tax profit of $4.9 billion, down 14 percent from $5.7 billion a year ago.

HSBC blames the profit dip on rising costs, which, as a proportion of income, surged to 60.9 percent from 49.6 percent in the same period last year.

Ye Lian, a banking analyst at China Merchants Securities (HK), said Tuesday’s announcement was a “positive message” and was likely to “regain the confidence of the investors”.

“It is not just a response to the lender’s disappointing performance,” said Ye. “The new management team also tries to set tones for future operation through this way.”

Gulliver, 51, who replaced Michael Geoghegan in January after a boardroom power struggle, said the bank would continue to invest in markets with strategic relevance and high actual or potential returns and either turn around or dispose of other businesses.

By 2050, the bank estimates, 19 of the world’s largest 30 economies will be from what are currently termed emerging markets, among which the mainland will exceed the US economy in terms of gross domestic product (GDP), followed by a number of others including India, Brazil, Mexico and Turkey.

“Our strategy is to concentrate on commercial and wholesale banking in globally connected markets, and we will also focus on wealth management in 18 of the most relevant economies and limit retail banking to those markets where we can achieve profitable scale,” said Gulliver.

However, Li Shanshan, a Beijing-based analyst from Bocom International Holdings told China Daily HSBC’s schemed rapid expansion in the emerging markets would lead to a surge of operating costs in the short term.

HSBC shares slid HK$1.15 or 1.37 percent to close at HK$82.85 on its Hong Kong trading Wednesday, compared with the 0.19 percent drop of the city’s benchmark Hang Seng Index.

On Tuesday, the lender, which is listed in five bourses worldwide, also said it aimed to get return on equity into a 12-15 percent target range by 2013, from 9.5 percent last year and about 5 percent in 2008 and 2009.

China Daily

(HK Edition 05/12/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/12/content_12493241.htm