* CEO plans to cut annual costs by up to another $3 bln
* May axe a further 14,000 jobs
* Aims for costs near 55 pct of revenue vs earlier 52 pct
* Bank to consider share buybacks, to grow dividend
* Shares up 0.9 percent
By Lawrence White and Steve Slater
HONG KONG/LONDON, May 15 HSBC will
redouble its cost-cutting efforts, including axing up to 14,000
more jobs, but Europe's largest bank was forced to soften a key
performance target in the face of muted revenue.
London-headquartered HSBC is seeking up to $3
billion in additional annual savings by 2016, on top of $4
billion already achieved, but sluggish growth outside Asia,
particularly in Europe, means its target to get costs below 52
percent of revenue has been eased.
The new goal is to keep the ratio near 55 percent, the level
it was at in 2010 - the year before Chief Executive Stuart
Gulliver took over and kickstarted a radical retrenchment at a
bank that was criticised in the past for "planting flags" around
"We're clearly hitting on the costs, but we're missing on
the cost efficiency ratio because of revenue, which is hard for
us to control," Gulliver told reporters. "Top line growth is
clearly a challenge."
He added: "We need to have a cost-efficiency target that's
realistic, so we're saying take a look at our peer group, they
are all in the high 50s or low 60s, whether it's JPMorgan
, Citi, Standard Chartered or Barclays
HSBC had a cost efficiency ratio of 63 percent last year,
which improved to 53 percent in the first quarter. Banks do not
release comparable data, but last year JPMorgan's expenses were
67 percent of revenue, at Citi it was 65 percent, Barclays had
an adjusted cost/income ratio of 64 percent and Standard
Chartered's normalised cost/income ratio was 54 percent.
Gulliver, former head of HSBC's investment bank, has already
cut 46,000 jobs and sold or closed 52 businesses, including a
minority stake in Chinese insurer Ping An and its U.S
Such deals have reduced its risk-weighted assets by $95
billion and produced gains totalling about $8 billion.
"We're not even halfway through unlocking the value in HSBC.
The strategy is not changing, it is working," Gulliver told
Gulliver said the run-off of its U.S. loan book and legacy
investment bank assets would make it difficult for HSBC to meet
its goal of a return on equity of over 12 percent this year, but
he stuck with that target for the future. He also hardened his
goal on capital, aiming for a core capital ratio of more than 10
HSBC said it would "progressively grow" its dividends and
would introduce a share buyback next year, if investors and
regulators give their approval.
That would make it one of the first European banks to buy
back shares since the financial crisis. Its aim would be to
offset the impact of its scrip or share dividend, which is
popular with Hong Kong retail investors but causes dilution for
shareholders as more than $2 billion of shares are issued each
"They are doing a good job on costs, capital looks good,
balance sheet looks good, but the big issue is when does the
revenue growth come through?" said Chris Wheeler, analyst with
Mediobanca. "The big debate will rage about revenue growth."
Shares in HSBC, the world's third-largest by stock market
value after China's ICBC and China Construction Bank
, were up 0.9 percent at 753 pence by 1230 GMT
against a 1.6 percent rise in the European sector.
The stock has risen around 13 percent since the start of
2011, compared with a 9 percent drop in the sector.
In the face of weak demand in Europe, HSBC plans to increase
revenue by focusing on high-return markets in Asia, where it
generated around two-thirds of its profit in the first quarter.
It has scaled back its annual revenue growth targets for its
wealth management division by $1 billion to an additional $3
billion, blaming tougher regulations for crimping its ability to
sell products in countries such as Britain.
Gulliver said the bank was unlikely to spend extra cash on
any significant acquisition.
He said the bank could also sell its 8 percent stake in Bank
of Shanghai, which he said was likely to be worth between $500
million and $600 million. Its 19 percent stake in Bank of
Communications remain core and was it key China associate, he
The bank said this week it could sell its private banking
business in Monaco, but its new cost-cutting campaign is set to
focus less on disposals and outright closures and more on
The bank said employee numbers could fall to between 240,000
and 250,000 by 2016, from 254,000 when current disposals and
announced cuts take effect. It did not say where the additional
cuts would be made, saying only they would be "spread quite
thinly around the world".
With the banking industry assailed by a new world order of
tougher regulation and weak investment returns, HSBC said it
needed to take its cue from other sectors that faced major
challenges including telecoms and car making.
In a 83-page presentation for investors, HSBC said there
were still significant opportunities to cut costs by simplifying
operations, flagging a recent contract it had signed with one
vendor to manage its facilities, replacing 1,100 different
suppliers it had previously.