HSBC Holdings Plc, Europe’s largest bank, plans to eliminate as many as 25,000 jobs and sell operations in Turkey and Brazil to help restore profit growth.
Under a three-year plan, HSBC will reduce the number of full-time employees by 22,000 to 25,000, or about 10 percent, it said in a presentation to investors on its website on Tuesday. The sale of businesses will lower headcount by a further 25,000, helping cut annual costs by $4.5 billion to $5 billion by the end of 2017. The bank left its profitability target unchanged.
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.
At the investment bank, HSBC plans to cut RWAs by a net $130 billion, or 31 percent, while “keeping costs flat.” The global banking and markets division had a 6 percent profit gain in the first quarter, as revenue from foreign exchange rose.
The savings program will cost $4 billion to $4.5 billion through 2017, according to the statement.
“There are no sacred cows” among HSBC’s business lines and countries the bank operates in when it comes to boosting profitability, Gulliver told investors. The bank will continue to evaluate whether it makes sufficient returns, he added.
HSBC, founded 150 years ago in Hong Kong, will also sell operations in Turkey and Brazil, while stepping up investment in Asia, expanding asset management and insurance and focusing on places including China’s Pearl River Delta.
“Margins are higher” in Asia,’’ Jonathan Tyce, a senior bank analyst at Bloomberg Intelligence, said on Bloomberg Television in London on Tuesday. “Everybody’s all over Asia. This is all about improving capital efficiency. You can completely understand the motivation.”
With his strategy update, Gulliver is seeking to convince investors that he’s the right man to lead HSBC. At Deutsche Bank AG, Germany’s largest lender, co-CEO Anshu Jain announced his resignation on Sunday, just two months after presenting a strategic update that investors considered too weak.
“Gulliver is not an idiot,” said Chris Wheeler, an analyst at Atlantic Equities in London. “This is quite the opposite to Deutsche Bank as there is tons of granularity of where the cost-cutting will come, how they’re achieving it and why they’re getting out of countries.”
HSBC has come under pressure to reduce costs and reverse a decline in profit after a year that saw the bank being fined for manipulating currency markets and embroiled in a tax-avoidance scandal in Switzerland.
The bank last week agreed to pay 40 million Swiss francs ($43 million) to close an investigation by Geneva prosecutors into allegations of money laundering at its Swiss private bank.
In February, Gulliver pledged that under-performing units would face “extreme solutions” after full-year earnings fell 17 percent and the lender scrapped four-year-old profitability targets, citing a tougher regulatory environment.
In the first quarter, adjusted revenue rose 4 percent to $15.4 billion, missing analysts’ estimates, on higher costs.
“It’s a good cost number,” Tyce said. “I don’t think people have a problem believing that they’ll deliver on that. There’s probably some skepticism about where revenues go.”
HSBC is among the hardest hit by regulator scrutiny, with the Bank of England forcing the largest lenders to separate their consumer from riskier investment banking activities by
2019. It’s also been hurt by an increasing bank levy, costing lenders about 5.3 billion pounds over the next five years.
The bank said earlier this year that it’s reviewing whether to relocate from London because of rising tax and regulatory costs. HSBC will complete its headquarters review by the end of 2015, with any move seen taking two years to complete, according to Gulliver.
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“It would be a mistake that HSBC flees the country,” Bill Blain, a strategist at Mint Partners, said in an interview with Jonathan Ferro on Bloomberg Television on Tuesday. “This is actually a pretty good place for banks to be.”