Banks are all into change right now. It seems barely a month goes by without one of them announcing some grand scheme to streamline their business. Not to be outdone, HSBC boss Stuart Gulliver revealed this morning how the bank will adapt to a changing world. He used a lot of words like ‘pivot’ and ‘synergies’, but the message broadly is that HSBC is refocusing its business to Asia while slashing annual costs by $4.5-$5bn (£2.9bn-£3.2bn), or up to 15%, by 2017.
The cost cutting, which is itself expected to set the bank back by up to $4.5bn, is part of a wider trend within banking. Like its peers, HSBC wants to downsize its risk weighted assets (RWAs), effectively reducing its exposure to the kind of losses seen in the financial crisis and assuaging watchful (and at times vengeful) governments.
The bank intends to reduce RWAs by 25% or $290bn over the next few years. It hopes this will in turn reduce future regulatory fines. That is not the only cost saving it intends to make of course. Up to 25,000 jobs worldwide will also go, even as the bank expands into new markets, of which 7-8,000 will be in the UK, ‘a large chunk of which will be managed by natural attrition’. That's about one in 10 internationally and one in six or seven in Britain.
HSBC is also exiting poorly-performing Turkey and Brazil – proving there are ‘no sacred cows’ - as it attempts to capitalise on its strong position in fast-growing Asia. Revenues from the continent increased from 33% to 64% between 2004 and 2014 as a share of the bank’s total.
For Gulliver, this clearly isn’t enough. Using the savings from cost reductions, ‘we’re going to pivot the firm further into Asia,’ he said, pointing to the Pearl River Delta, the world's largest urban area including mega-cities like Guangzhou and Hong Kong, and Southeast Asia as particularly important regions. Indeed, he said, the bank is already set to make $1.7bn alone from the 'internationalisation' of the Remnimbi, as the Chinese currency comes to be used more widely in world trade.
It makes a lot of sense. Asia is where the growth is, HSBC is already strong there and Gulliver wants to be remembered as the boss who secured the bank’s global position rather than the one who presided over the Swiss private banking scandal.
It will, however, increase concerns that HSBC will indeed move its headquarters out of the UK. The decision will be made by the end of this year. The UK retail bank is already due to be ‘ring-fenced’ or separated from the main business, and is due to be based in Birmingham.
Gulliver said ‘it’s far too early to decide whether to keep’ the ring-fenced bank, which will operate under a new name and have expected revenues of about $11bn. ‘The question for us will be about controlling the dividend on the ring-fenced bank and making sure the strategy of the ring-fenced bank will complement the group’s.’
HSBC shares have remained virtually level at 619p this morning, in a sign this is nothing investors didn’t expect. Whether the same can be said for Chancellor George Osborne, whose persistent bank levy increases have pushed HSBC to look abroad for its headquarters even as its changing business pulls it, is another matter.