HSBC pledged a new era of higher dividends on Tuesday, laying out plans to slash nearly one in five jobs and shrink its investment bank by a third to combat sluggish growth across its sprawling empire.
Chief executive Stuart Gulliver has made it his mission to boost profits since taking the helm of Europe’s largest bank by assets in 2011 but his efforts have so far been foiled by high compliance costs, fines and low interest rates.
In the bank’s second big overhaul since the financial crisis it will speed up a cull of unprofitable units and countries by cutting almost 50,000 jobs – half of them from selling businesses in Brazil and Turkey.
It will cut its assets by a quarter, or $290 billion on a risk adjusted basis (RWA) by 2017, and slice $140 billion from its investment bank, which will subsequently make up less than a third of HSBC’s balance sheet from 40 percent now.
Gulliver also pledged higher payouts for investors. “I believe that we are in the foothills of another prolonged period of dividend growth for the firm,” he said. He noted that the bank’s dividend had grown for 17 years from 1991 to 2008.
But investors were cautious about how HSBC would translate job cuts into meaningful savings given the higher cost of doing business in a tougher post-crisis business environment marked by new rules on risk and compliance.
“Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex,” said James Antos, analyst at Mizuho Securities Asia.
HSBC shares dipped 1.1% by midday, pressured also by disappointment after the bank cut its target for return on equity to greater than 10% by 2017, down from a previous target of 12-15% by 2016.
European rivals, including Barclays, UBS and Deutsche Bank, have axed thousands of jobs, but many are facing fresh calls for more radical cuts in investment banking.
Some investors and analysts reckon HSBC should consider breaking up, on the grounds that extra compliance and regulatory costs outweigh the benefits of scale.
But Gulliver defended the bank’s global footprint and universal strategy.
“The answer isn’t the network should be broken up, the issue is there are four or five countries that are a major problem,” he told investors and analysts in a presentation.
Gulliver said about 7,000-8,000 job cuts would be in Britain, or one in six UK staff.
The sale of businesses in Brazil and Turkey will cut $110 billion of risk-weighted assets.