HSBC accelerates cuts plan

HSBC’s new cost-cutting drive, stretching out to 2016, will enable the bank to boost capital and grow dividends, but chief executive Stuart Gulliver softened a key target to get costs to below 52 percent of revenue.

The new goal is to keep the ratio near 55 per cent.

Mr Gulliver has already sliced $4bn off annual costs and culled 46,000 staff under an overhaul he began when he became CEO at the start of 2011.

The bank said employee numbers could fall to between 240,000 and 250,000, from 261,000 at the end of 2012 and 254,000 when current disposals and announced cuts take effect.

“I was looking for an ongoing battle against costs and the number they have put on it is bigger than I would have thought, given that they have taken out 4 billion already,” said Chris Wheeler, analyst with Mediobanca.

“The big debate will rage about revenue growth today.”

In the face of weak demand in Europe, HSBC plans to grow revenue by focusing on high-return markets in Asia, and through greater cooperation between the bank’s Commercial Banking, Private Banking and Global Banking and Markets divisions.

The business unit collaboration effort realised $900m in added revenue between 2011 and 2012, the bank said, with an additional $2bn in incremental collaboration revenue targeted by 2016.

Mr Gulliver kept his goal to deliver a return on equity (RoE) of at least 12 percent and hardened his goal on capital, aiming to hold a core capital ratio of over 10 per cent, against a previous target of between 9.5 and 10.5 per cent.

That reflects tougher capital rules being enforced on banks by global and UK regulators, which depresses the returns banks are able to deliver. Some analysts say HSBC may not deliver its RoE target by this year, which was Mr Gulliver’s aim.

HSBC also said it would “progressively grow” dividends and introduce a share buyback scheme as it seeks to return value to shareholders.

The plan set out by Mr Gulliver in May 2011 called for a complete overhaul of the bank by reducing costs, exiting sub-scale or unprofitable businesses and focusing on growth markets.

HSBC has already announced the sale or disposal of 52 businesses since 2011 and when those are complete, HSBC will have cut $95bn in risk-weighted assets, the bank said on Wednesday.

The bank’s shares are up 13 per cent since the start of 2011, compared with a 9 per cent drop in the European bank sector. That has left the bank valued at $210 billion, just ahead of US rival Wells Fargo and making it the third biggest in the world.

HSBC owns Leeds-based First Direct.