HSBC will cut almost 50,000 jobs and slash its investment bank, cutting the assets of Europe's biggest lender by a quarter in a bid to simplify and improve its sluggish performance. The move is likely to affect about 7,000 to 8,000 jobs in UK itself.
The bank said about half the staff cuts will come from the sale of businesses in Brazil and Turkey. The other half will come from cutting about 10 per cent of the remaining 233,000 staff by consolidating IT and back office operations and closing branches.
The cuts will leave HSBC with about 208,000 full-time staff by 2017, down from 295,000 at the end of 2010 and 258,000 at the end of 2014, although the bank said it would be hiring in growth businesses and its compliance division.
The cuts are part of a second attempt by Chief Executive Stuart Gulliver to boost profits since he took over charge at the start of 2011. The previous effort was foiled by high compliance costs, fines, low interest rates and sluggish growth.
"Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex," said James Antos, analyst at Mizuho Securities Asia.
HSBC said it would cut its assets on a risk adjusted basis (RWA) by $290 billion by 2017. That will include a reduction of a third, or $140 billion, in global banking and markets (GBM), its investment bank. That means GBM will account for less than a third of HSBC's balance sheet, down from 40 per cent now.
Investors had been calling for more radical cuts at the investment bank, which Gulliver ran for five years but where returns have suffered in tough market conditions. "The cuts provide significant headroom for the group to fund asset growth in Asia and absorb RWA inflation, whilst protecting its ability to pay a progressive dividend," said Gurpreet Singh Sahi, analyst at Goldman Sachs.
The bank lowered its target for return on equity to greater than 10 per cent by 2017, down from a previous target of 12-15 per cent by 2016. Gulliver said he would push through annual cost savings of up to $5 billion by 2017. It will cost up to $4.5 billion in the next three years to achieve the savings.
HSBC confirmed the planned sale of its businesses in Turkey and Brazil, adding it would keep a presence in the latter to serve corporate clients. It aims to overhaul underperforming businesses in Mexico and the United States to improve returns. The bank said it was also targeting growth in Asia by expanding its insurance business and its presence in China's Pearl River Delta region. Some analysts said the changes did not go as far as hoped, though others said the asset reduction plan was a substantial shift.