(Adds details on United States, retail banking)
LONDON/HONG KONG May 11 HSBC Holdings Plc (0005.HK) (HSBA.L) is to slash up to $3.5 billion in costs and cut back in retail banking. [ID:nH9E7FS004] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Watch the presentation on Reuters Insider: link.reuters.com/nyt49r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Here are the highlights of the company's plans:
Plans to cut annual costs by between $2.5 billion and $3.5 billion and cut expenses to 48-52 percent of revenue by 2013. The ratio rose to 55 percent last year. "We clearly have a cost problem," CEO Stuart Gulliver said.
Cost savings will range from saving $300 million a year by simplifying its regional structure and saving $175 million by moving IT operations to lower-cost locations.
The bank aims to lift its return on equity to 12-15 percent from 9.5 percent last year and near 5 percent in the previous two years. It will take two to three years to reach its target.
About 42 percent of operations are delivering a return below the bank's 11 percent cost of capital, Finance Director Iain MacKay said. It is targeting a pretax return on risk weighted assets of 1.8 percent to 2.6 percent.
The bank is reviewing whether to keep its credit card business in the United States. Its customer base is not linked to the rest of the group.
Selling cards could release $25 billion of capital, analysts at Barclays Capital have estimated.
The credit card business has about $31 billion of loans and consumes more capital on a risk-weighted basis. Further capital investment is necessary to maintain its performance and HSBC said its appetite to do so is limited.
Its network of 475 U.S. branches needs to be repositioned to better align it with group strategy and take advantage of a revival in U.S. manufacturing.
HSBC plans to limit retail banking to markets in which it can achieve profitable scale. It will look at selling, shutting or slimming down retail operations in 39 of the 61 retail markets where operations are sub-scale and unprofitable. These businesses made a combined loss of $244 million last year and had 420 branches. Russia was the only country it named that it will leave.
Its strategy is to concentrate on commercial and wholesale banking in globally connected markets.
Will focus its wealth management business which centres on its Premier brand in 18 of the most relevant economies. It expects additional revenue of $4 billion by capturing the wealth opportunity in fast-growing markets.
It expects $1 billion in additional revenue from improved connectivity between commercial and investment banking.
It estimates mitigating management actions can limit the hit on its capital ratios from Basel III rules to 120 basis points. It had previously said the impact could be 250-300 basis points.
Gulliver said none of HSBC's investments in businesses in China are for sale, such as its 16 percent stake in insurer Ping An (601318.SS)(2318.HK).
ASIA WAGE INFLATION:
Despite the clampdown on costs and rising wage inflation in hot Asian markets like Hong Kong, China and Asia, Gulliver said: "We're not going to compromise on talent ... We will defend our leadership position in Hong Kong at all costs, this is our heartland, so there will be wage price inflation there."
HSBC will target a payout ratio of 40-60 percent.
Will leverage its balance sheet and sees room to grow its loans to up to 90 percent of deposits, up from 79 percent.
Gulliver said the bank would not rule out making acquisitions but added that there were no deals on the table.
Gulliver said he could not specify the number of likely job cuts resulting from the business revamp.
(Compiled by Steve Slater; Editing by Erica Billingham and David Holmes)