HSBC in $3.5 billion cost-cutting overhaul

HSBC's new boss is to cut back in retail banking and may sell its US credit card arm in a bid to cut $3.5 billion in costs and revive flagging profits. Europe's biggest bank faces an urgent need for action as over two-fifths of its businesses are not delivering their cost of capital, Chief Executive Stuart Gulliver said.
Retreating from high street services in some countries and savings ranging from IT cuts to reducing paperwork would help trim costs as a share of revenue to 48-52 percent by 2013 from 61 percent in the first quarter. Many banks, including HSBC, have seen this ratio rise sharply, partly through competition for staff in fast-growing Asian markets.
By comparison, rival Standard Chartered's cost/income ratio was 56 percent last year. But others have done more to keep costs below 50 percent, such as Spain's Santander, where it was 43 percent last year. "We clearly have a cost problem," Gulliver said in a presentation to explain his strategic overhaul on Wednesday. "We've added $3 billion in costs over the last few years with no revenue to show for it," said the 51-year-old CEO, who took the top job at the start of the year after a damaging boardroom struggle last year.
Gulliver said a lot of the savings would be reinvested in higher growth areas. He reckons he can get $4 billion a year in additional revenues from winning business from wealthy customers and an extra $1 billion from making commercial and investment banking work more closely together.
The extent of Gulliver's task was laid bare on Monday this week, when the bank's results showed a jump in costs dragging quarterly profits down some 14 percent. Investors and analysts were unimpressed by the plan, and HSBC shares dipped 0.8 percent to 651 pence at 1150 GMT. "Half of...(the) things they should be doing anyway," Brown Shipley's Smith said.
"What is radical for HSBC is just not that radical for outsiders looking in," said Simon Maughan, analyst at MF Global in London. The retreat marks a big shift from HSBC's traditional strategy, which has been criticised as "planting flags" around the world with little consideration to profitability.