HSBC Sees Euro Area Revenue Drag Without Bad Debt Boom

HSBC Holdings Plc (HSBA), Europe’s largest bank, forecast that the euro region will prove to be a drag on revenue growth without threatening an explosion in bad debts.

Weakness in the world economy and quantitative easing by central banks are also hindering revenue growth, Chief Executive Officer Stuart Gulliver told an informal meeting of shareholders in Hong Kong yesterday.

“We have significantly reduced our exposure and risks to the European banks and to the European governments,” Gulliver said. “The euro zone represents a revenue headwind rather than the risk of very large bad debts.”

Gulliver, 54, is focusing on reducing costs, selling assets and expanding in faster-growing markets as he struggles to boost revenue that’s been crimped by the sovereign debt crisis in Europe. HSBC will eliminate as many as 14,000 jobs over the next three years, helping cut an additional $2 billion to $3 billion of costs, he said during a May 15 investor day.

“Profit before tax won’t go up from revenue, so we’ve really got two levers, which are costs and loan impairment charges, that we can actually move with,” Gulliver said.

Gulliver has already cut more than $4 billion of annual costs, beating his initial target, and eliminated 46,000 jobs, since he took over in 2011. While HSBC has met its original cost savings target, it hasn’t met the goal to reduce costs as a percentage of revenue because income hasn’t grown, he said on May 15.

The bank will seek to reduce expenses to about 55 percent of revenue in 2014-2016, HSBC said. That compares with a target of 48 percent to 52 percent for the previous three-year period. The additional job cuts will be global and not focused on any particular area of the business, Gulliver said last week.

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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