The bank’s costs in relation to revenue rose to 57.5 percent in the first half from 50.9 percent a year earlier, because of higher staff numbers, wage inflation and other costs, HSBC said as it reported a 36 percent increase in first-half profit. Costs are still higher than its 48 to 52 percent target range, the London-based lender said in a statement today.
“The market is likely to interpret the job cuts in a positive way,” said Neil Smith, a banking analyst at WestLB AG in London. “HSBC need to keep their costs under control.”
HSBC is cutting jobs and closing offices to reduce costs by as much as $3.5 billion over the next two years as it tackles wage inflation in faster-growing economies and prepares for stricter capital rules. The bank follows Credit Suisse Group AG, UBS AG, Bank of America Corp. and Goldman Sachs Group Inc. in eliminating roles as investment banking revenue declines. European banks have cut 230,000 jobs since the start of the financial crisis in 2007, according to Bloomberg Industries.
HSBC gained as much as 5.1 percent to 624.9 pence and traded up 4 percent to 618.4 pence at 1.53 p.m. in London, the biggest riser in the Bloomberg Europe 500 banks index, giving it a market value of about 110 billion pounds ($180 billion).
“What we’re talking about is removing a lot of back, functional head office support staff where we believe we have created an unnecessary bureaucracy in this firm over a number of years,” said Stuart Gulliver, chief executive officer.
HSBC has already cut 5,000 of the jobs and they may hire 3,000 to 4,000 people in emerging markets, Gulliver told journalists today. The 30,000 jobs excludes employees leaving when assets are sold, he said. The target doesn’t take into account any additional cuts that could follow the U.K. Independent Commission on Banking’s report in September, Gulliver said. The panel may force lenders to separate their consumer and investment banking units.
HSBC’s cost-income ratio is “middle-of-the-road, but it’s a large global bank that should be able to benefit from scale economies,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool.
Unite, a British trade union, described the restructuring as “brutal” and said it was unfair that employees were paying for a banking crisis for which they were “in no way responsible.”
HSBC, the first British bank to report earnings for the first half, said net income rose to $9.22 billion from $6.76 billion a year earlier. That beat the $7.82 billion median estimate of seven analysts surveyed by Bloomberg.
Bad Loan Provisions
Pretax profit at HSBC’s European unit tumbled 39 percent to $2.15 billion. The region accounted for 19 percent of HSBC’s profit in the first half, compared with 32 percent a year ago.
Pretax profit at the lender’s global banking and markets unit, which includes investment banking, fell 12 percent to $4.81 billion, hurt by its fixed income business in Europe as the continent’s sovereign debt crisis forced Greece to accept a second bailout. Total operating revenue at the unit fell to $9.7 billion from $10.4 billion as the bank suffered “weaker” credit and rates trading revenue in Europe, it said.
Bad loan provisions in the North American business fell to $3 billion, from $4.55 billion, HSBC said.
HSBC today agreed to sell its upstate New York branch network, comprising almost half its U.S. outlets, to First Niagara Financial Group Inc. (FNFG) for about $1 billion as it pares its operations in North America. The bank is also seeking a buyer for its U.S. credit-card business. The bank sold part of its Russian consumer banking unit last month and on July 28 said it will close its 10 retail branches in Poland, where it employs 263 people.
The bank acquired U.S. subprime mortgage lender Household International, now known as HSBC Finance, for $15.5 billion in 2003. HSBC has since halted consumer-finance lending at the unit and recorded more than $63 billion of provisions in North America, according to data compiled by Bloomberg based on company filings.
The proportion of profit HSBC gets from its Asian, Latin American and Middle Eastern businesses rose to 76 percent in the first half, from 64 percent in the same period last year, the bank said today.
“We remain positive on the outlook for emerging markets,” the company said. “We expect a soft landing in China and we believe Hong Kong is well-equipped to mitigate overheating pressures.”
In its consumer banking division, HSBC will focus on the U.K., Hong Kong, high-growth markets such as Mexico, Singapore, Turkey and Brazil, and smaller countries where it has a leading market share, Gulliver told shareholders in May. It plans to boost revenue at the unit by $4 billion in the near-to-medium term, the bank said at the time.