Headlines about HSBC's latest strategy on Tuesday were dominated by its drastic plan to cut 50,000 jobs. But while Europe's biggest bank is slashing in some areas, it is building up others just as much — particularly in Asia.
Four years after taking over as chief executive, Stuart Gulliver presented his plan on Tuesday to turn round the bank's performance, which has stumbled in recent years and missed several of the targets he set out in his initial strategic plan.
There were three main messages in what he and his top executives said to investors and analysts during a five-hour presentation at the bank's London headquarters.
First, he emphasised the extent of changes undertaken since he took over and outlined next steps to rein in costs and shed underperforming businesses. This was combined with a list of excuses for missing targets on regulation, tax and fines.
The second point centred on why HSBC's size and global reach — stretching across more than 70 countries — still gives it a big advantage. Mr Gulliver said this added $ 22bn to revenues, about 40 per cent of the total.
Finally he explained the opportunity presented by the expected rapid growth of Asian economies, and in particular the Pearl River Delta region of southern China.
"Almost what they are saying is 'give us more time'," said James Laing, deputy head of UK and European Equities at Aberdeen Asset Management, a top-10 investor in the bank.
"Structurally they are in the right place, with such a strong position in Asia. But will they actually deliver on it? That is what investors need to decide."
HSBC plans to shed $ 290bn of its risk-weighted assets — about a quarter of its total. Almost half of this will be from cutbacks in its investment bank, including shedding low-return clients, assets and long-dated interest rate swaps.
The rest comes from the disposal of lossmaking operations in Brazil and Turkey, commercial banking cutbacks and winding down its US mortgage portfolio.
Mr Gulliver said $ 180bn-$ 230bn of these assets would be redeployed to higher-return activities, mainly in Asia. The bank expects future regulatory changes to increase the risk-weighting on some investment banking assets. So overall its balance sheet will be flat.
It is a similar story for the cost base, which is to remain unchanged on an underlying basis between 2014 and 2017, as investments in Asian growth, an increase in the UK bank levy and the impact of inflation counter a $ 4.5bn-$ 5bn cost-cutting programme.
HSBC's restructuring plan is based on 25,000 job losses — mainly from cutting its global branch network by 12 per cent and withdrawing from parts of its investment bank — and exiting Brazil and Turkey, which together employ another 25,000 people.
However, this reduction of about a fifth of the group's 260,000-strong global workforce will be almost entirely offset by hires in other parts of the business, notably the Asian expansion, and investment to meet regulatory requirements.
The reaction from analysts was astonishment at the level of detail provided and a lack of enthusiasm at the targets. The bank's goal of 10 per cent return on equity by 2017 is barely above what most analysts consider its cost of capital.
"Overall, we believe that the group is taking action to shrink low return on equity businesses, which is positive, but the changes announced are unlikely to positively impact earnings estimates," said Raul Sinha, analyst at JPMorgan Chase.
Mr Gulliver hopes investors will focus on the potential of Asia, where the bank generates 80 per cent of its profits and hopes to emulate its Hong Kong successes across the border in the Pearl River Delta.
When combined with Hang Seng Bank, of which it owns a majority, HSBC is the biggest lender in Hong Kong in terms of deposits and loans, and has a dominant presence in many areas — such as its 44 per cent share of the credit card market.
Although the bank's customer deposit base is larger in the UK, its business in the former British territory generated almost half its $ 18bn profit last year.
HSBC sees growth opportunities in serving the Pearl River Delta region's retail customers with mortgages, insurance products and credit cards, and its companies through cross-border trade finance and investment banking products. In those areas international competition will come mainly from Bank of East Asia, Singapore's DBS, and Standard Chartered.
HSBC's customer deposits in China are only a fraction of its Hong Kong business, at $ 43bn against $ 389bn at the end of 2014. It still has only 175 branches on the mainland — less than a fifth of the UK total.
Yet it has the advantage of being the dominant international bank in the manufacturing heartland of Guangdong. Most analysts say it is as well placed as any foreign bank to succeed in one of the world's fastest-growing regions.
"It is a very sensible story for them," said Keith Pogson, head of Asia financial services at EY. "The numbers are not massive in the context of the business, and not unachievable.
"HSBC is doing what any strategist would tell them to do: do more of what you are good at — go back to your roots."
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