By IFR Editor-at-large Keith Mullin
May 20 (IFR) - The May 15 strategy update by HSBC, ably and
confidently fronted by CEO Stuart Gulliver, seems to have gone
down pretty well.
Truth be told, I couldn't find anything particularly
contentious in there, although the cost-income miss and the
delay in hitting targeted ROE were far more noteworthy, in my
view, than the additional job cuts that got all the headlines.
The thing is: you can't argue with any of that dull but
worthy stuff that Gulliver said about simplifying and delayering
the organisation to make it more manageable, derisking in
higher-risk locations, maintaining tight cost discipline,
streamlining processes, focusing on high-growth regions, or
aspiring to global standards. And all under that cheesy "acting
with courageous integrity" value proposition for staff. It just
ticks all the right boxes.
But if the update offered up good content on the bank's
progress, it lacked glamour, glitz and razzmatazz - actually a
bit like HSBC really. There's a broadly positive bias on the
stock among the 33 brokers in the Thomson Reuters consensus.
With almost poetic justice, the bank sits just on the right
side of the grey neutral zone: 12 are "hold" while 14 are "buy"
although the consensus has been trending a little south on a
A lot of the media focus has been on the up to 14,000
additional job cuts that are coming on top of the 46,000 that
have already gone; many through business disposals. Not to be
dismissive of the pain that accompanies downsizing at an
individual level, it's worth pointing out that HSBC still
employs the equivalent of the population of a medium-sized town
- not far off 260,000 people - and has lagged many of the
previously top-heavy universal banks in getting its headcount
down. On a percentage basis, the additional cuts look modest.
At the end of the day, the numbers are the numbers and the
bank had little choice but to target US$3bn in cost savings by
2016 on top of the US$4bn made to-date. And that's just to keep
its cost efficiency ratio in the mid-50s, a big miss and some
ways off the previously articulated 48%-52% target.
Gulliver said this was down to revenue shortfalls emanating
from events such as the eurozone crisis and the consequent
difficulty in achieving top-line growth as opposed to hitting
cost targets, where he said the bank has outperformed. But the
timing of delivering revenue growth is a big issue. To deflect
attention from the miss, Gulliver had a pop at peers such as JP
Morgan, Barclays or Standard Chartered, which he pointed out
sport CERs in the high 50s or low 60s. That usually works.
Even though the lag in the run-offs of the US loan book and
legacy investment bank assets will act as a drag on hitting the
ROE target of 12%-15%, Gulliver is steadfastly sticking to that
range, which he says is being achieved in the underlying
business. And he is committed to hitting a CET1 ratio of
10%-plus and maintaining the advance-to-deposit ratio well below
the 90% cap.
Fair's fair, selling or shuttering 52 businesses in two
years with an US$8bn gain on sale; cutting RWAs by US$95bn;
achieving US$4bn of annualised sustainable cost savings; and
hitting double-digit loan growth in 15 out of 22 priority
markets is no mean feat. "We're not even halfway through
unlocking the value in HSBC. The strategy is not changing, it is
working," Gulliver told analysts.
There was no pullback either from the plan to super charge
growth in high-growth markets such as Asia away from laggards
such as Europe (why would there be?) and this will come
organically; no acceleration through acquisition. On the plus
side, HSBC has all of the benefits of being a diversified
universal banking group. Like everyone else in its peer group,
one of the goals is to leverage synergies between divisions to
squeeze some revenue benefit.
GBM, which accounted for 43% of the US$8.4bn group Q1 PBT,
also looks pretty diversified across areas it sees as core
strengths: DCM, project finance lending and advisory, export and
trade finance, FX, securities services as well as event-driven
activity in emerging markets (the latter in particular
facilitated by its massive balance sheet). Of course, macro
themes such as RMB internationalisation, bank disintermediation
and EM spending on infrastructure all play into HSBC's priority
By referring to GBM's "distinctive" and "differentiated"
wholesale business model vis-a-vis bulge-bracket investment
banks and not falling for presenter hyperbole and describing it
as unique, Gulliver deserves credit.
His goal for GBM is to be a top five bank to its priority
clients. When a bank says it's focusing on priority clients as
opposed to targeting market leadership per se - the annoying new
mantra - it's hard to gauge from the outside how successful it
is. League tables certainly show the group firing in some areas;
arguably lagging in others. HSBC is top three in Asia ex-Japan
M&A so far this year: number one in India, but surely punching
below its weight in China, 13th; MENA, 11th, and LatAm, eighth.
Its DCM business is solid across the board; it's a
consistent performer across most areas, particularly in Asia and
more broadly in EM. (Its number one YTD ranking in euro bonds -
a whisker ahead of Deutsche Bank - is a bit of a turn-up). Its
ECM business is average at best: irrelevant in EMEA but perhaps
of more concern sixth in Asia and way off Goldman Sachs and UBS
(which are running neck and neck way out in front).
I await the next update with interest, although I implore
the bank's marketing gurus to please, please come up with
something more imaginative than: "Strategy unchanged: next
phase". I almost went for the alternative of watching paint dry.