HSBC identifies further transformative cost cuts

HSBC Chief Executive Stuart Gulliver has notified of further considerable cost cutting plans as the bank becomes "simpler and easier to manage" after shedding a swathe of underperforming businesses.

In an investor update at its London headquarters, the banking group notified of "significant execution progress" in its new strategy, with the disposal of 52 non-strategic or underperforming businesses as part of $4.0bn of annualised sustainable cost savings.

Gulliver, who re-affirmed the targeted return on equity of between 12% and 15%, crucially also identified a further $2-3bn additional costs savings, with the aim of increasing the cost-efficiency ratio to the "mid-50s", both of which were ahead of market expectations.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"We have transformed HSBC in the first phase of the execution of our strategy," he said.

"HSBC is now simpler, easier to manage and ready to take advantage of growth opportunities," he added, pointing to the generation of double-digit loan growth in 15 priority markets.

Addressing regulatory and public concerns, Gulliver pledged that the bank would invest in world-leading risk and compliance capabilities and de-risk its operations in higher risk locations.

The bank's strategy remains "unchanged" and the priorities for the next phase between 2014 and 2016 are stated as growing both the business and dividends, implementing global standards, and streamlining processes and procedures.

He said: "Our 22 home and priority markets are expected to account for approximately 58% of addressable total banking revenue growth globally to 2020 [according to McKinsey & Co]. Over the next three years we will focus discretionary growth of risk-weighted assets in our priority faster growing markets and Commercial Banking."

Gulliver said the board could seek to "neutralise the effects of the scrip dividend" if capital levels appeared to be at risk.

"HSBC has a distinctive position in the new environment for the banking industry," he concluded "Taken together, we are confident that these measures will deliver consistent and superior financial results and move us closer to achieving our ambition of being the world's leading international bank."

OH