Wednesday, May 11, 2011 HSBC unveils plan to cut annual costs by US$3.5b


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HSBC unveils plan to cut annual costs by US$3.5b

Bank cutbacks won't hit HK, mainland

Enoch Yiu in London and Lulu Chen
Updated on May 12, 2011

HSBC has embarked on a multibillion-dollar cost-cutting plan as part
of a strategy to jettison loss- making businesses and lift its
beleaguered share price.

Chief executive Stuart Gulliver, who took office in January, unveiled
plans yesterday to reduce costs by US$3.5 billion a year by 2013. They
include leaving non-profitable markets such as Russia's retail banking
business, disposing of the non-core US credit card business and
reducing a global workforce of 296,000.

Gulliver said the bank's operations in Hong Kong, the mainland and
other emerging markets would continue to expand and would not be
affected by the cost-cutting.

HSBC chiefs hope the measures will be welcomed by investors who
believe its share price will be boosted by making the bank leaner.
"HSBC's share price has been sidelined by peers for the past 11 years
despite the bank having a lot of growth potential and coping with the
global financial crisis well," Gulliver said.

Its shares closed at HK$82.85 yesterday. They fell to HK$33 in 2009,
when HSBC announced a big rights issue. Before the global financial
crisis, the share price was HK$140.

"HSBC has good profitability but we are struggling to tell our story
to investors due to our complex structure," Gulliver said after
presenting the new plan in London.

He and chairman Douglas Flint invited more than 100 people, including
representatives of the top 20 HSBC shareholders, analysts and credit
rating agencies, to the bank's London office to attend a marathon
"strategy day". The bank hosted a similar strategy day in 2007.

Gulliver said he wanted the day to become an annual event to give key
investors and analysts direct contact with management. "We have set
these cost-cutting targets as well as the business development targets
so the investors can assess our performance every year."

Gulliver repeated several times that the cost-cutting was not a
criticism of former management. "[Former chief executive Michael]
Geoghegan and other former managers have had to cope with the
financial crisis during the past few years," he said.

The market was not initially impressed by the new strategy. The bank's
share price dropped 0.7 per cent to 651.6 pence in London, its lowest
point since Friday.

"Everyone has been waiting for the strategy day for so long, but there
were no pleasant surprises," said Phillip Capital Management director
Louis Wong Wai-kit, who described the presentation as an anti-climax.

Several analysts asked whether HSBC was focusing too much on
cost-cutting and not enough on boosting revenue. But Gulliver said the
bank would boost revenue by developing its Hong Kong, mainland and
emerging-markets operations.

"We are not going to become an emerging-market bank but we will
develop in these markets," he said. "We believe 19 of the top 30
economies in 2050 will be from those currently deemed emerging
markets, such as China, India, Brazil, Mexico and Turkey."

The bank will exit or sell unprofitable businesses and focus its
retail banking business on Britain and Hong Kong, where Gulliver said
operations were very profitable and had growth potential. "The
internationalisation of the yuan is going to bring substantial growth
for Hong Kong and the global trade finance business," he said. "We
will defend our leadership position in Hong Kong at all costs. You
have to accept that this is our heartland."

Flint said the bank would not need to raise capital, although its plan
to list on the Shanghai exchange would allow it to raise funds for its
mainland and overseas expansion.

Gulliver said the US credit card business might be sold. While
profitable, it "has just been completely non-strategic to the group",
he said.

Still, HSBC would not withdraw from the market in the US because it
was the world's largest economy, he said. It would adjust its branch
network there to concentrate on trade finance.

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