HSBC returns to cost-cutting plan

Preparations are at an “advanced stage” for HSBC, one of the world’s biggest lenders, to try again to bolt together its commercial banking division with its global banking and markets unit. The revamp could lead to hundreds of job losses in senior ranks, says Patrick Hosking in The Times. 

While HSBC attempted a partial merger of the two divisions in 2020, it had to abandon the effort because of Covid. However, as its shares have greatly lagged its peers in the past nine months, it will restart the plans in the hope of saving up to $300 million. The move may help placate those who have grown frustrated with what they see as the “slow pace of cuts”, says Lex in the Financial Times. It also makes sense to focus on senior management as “that’s where the costs are”.

But the hoped-for $300 million in savings will amount to 1% of the total $32 billion in costs the bank reported last year. This is because a lot of the back-office functions are already consolidated between the two units. To put this into context, costs soared by 12% in the commercial banking division in the first half of this year.

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HSBC clearly suffers from “duplication across its different bits”, says Liam Proud for Breakingviews. Still, the merged entity would be opaque – investors could find it difficult “to get their heads around” the performance of a unit that offers everything from small-company banking to underwriting giant debt and equity offerings for multinationals.

A key task for HSBC

In any case, new CEO Georges Elhedery has a “much bigger job” than finding the “modest savings” he is reported to be eyeing up. A key task will be to find a way to grow the bank to make up for the loss in income from declining interest rates. Net interest income (the difference between what the bank makes from lending and what it pays out on savings) is projected to fall 7% this year and 2% next.

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