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HSBC warns on jobs as cost-cutting continues HSBC warns on jobs as cost-cutting continues
(about 5 hours later)
Thousands more jobs are at risk at HSBC on top of nearly 40,000 cut over the last two years, as chief executive Stuart Gulliver wields an axe to reduce costs and boost profitability. Some 14,000 more jobs are at risk at HSBC as chief executive Stuart Gulliver wields an axe to reduce costs, boost profitability and pay bigger dividends to shareholders.
He also signalled that the bank could start paying out larger dividends to shareholders and might begin share buybacks. By 2016, he expects HSBC to employ around 240,000 staff, compared with the 300,000 who worked for the bank when he was promoted to chief executive at the start of 2011.
HSBC is already the second largest dividend payer in the FTSE 100 – paying out £4.4bn last year – after oil company Shell. But the bank would need approval from the Prudential Regulation Authority to pay more dividends and conduct share buybacks. Still implementing reforms prompted by a record-breaking £1.2bn fine from the US authorities for helping Mexican drug barons launder money, Gulliver said the changes he had made to the UK's biggest bank since being promoted from running its investment banking arm was making the organisation easier to manage.
In a strategy update, Gulliver said that the UK's biggest bank wanted to focus on faster growing markets with a focus on commercial banking rather than high street banking.
He is aiming for a return on equity, a closely watched measure of returns for shareholders, of 12% to 15%, from just 8.4% now.
Still implementing reforms prompted by a record-breaking £1.2bn fine from the US authorities for helping Mexican drug barons launder money, Gulliver said the changes he had made since being promoted from running the investment banking in early 2011 was making the bank earlier to manage.
"HSBC is now simpler and easier to manage," he said, adding the bank would "de-risk our operations in higher risk locations"."HSBC is now simpler and easier to manage," he said, adding the bank would "de-risk our operations in higher risk locations".
"We will continue to exert tight cost discipline whilst streamlining processes and procedures. This enables us to invest in growth and global standards," Gulliver said as the bank published a slide presentation showing the workforce falling to 240,000 by 2016. He has already cut the headcount from 300,000 since he took over the bank and sold off or pulled out of 52 business lines. He has previously said 30,000 jobs would go by the end of his three-year programme this year and is ahead of target, with 26,000 having been cut through cost reduction measures and 14,000 through businesses being sold off. Last month the bank said it was "demising" more than 1,000 roles in the UK. "We will continue to exert tight cost discipline whilst streamlining processes and procedures. This enables us to invest in growth and global standards," Gulliver said in this third annual strategy day.
The job cuts are part of a plan to seek out additional cost savings of $3bn (£1.9bn) in 2014-2016. Adopting a motto for staff of "courageous integrity", Gulliver had cut the workforce to 260,000 by the first quarter of this year, and since then another 6,000 roles have gone – split between Panama and the UK, where 3,166 job cuts announced last month were described by the bank as "demising" roles.
The proportion of earnings retained for capital is being reduced to 45% from 50% allowing 40%, rather than 35%, to be paid out to shareholders and 15% being used to pay bonuses to the remaining staff. Share buybacks could be cards as the bank attempts to control the number of shares in issue because many of its shareholders, particularly in Hong Kong, receive their dividends in shares (known as a scrip dividend) rather than cash. When he first set out his proposals to cut costs by axing jobs in 2011, he said 30,000 jobs would go by the end of this year but he is ahead of target, with 26,000 having been cut through cost reduction measures and 14,000 through businesses being sold off.
Gulliver said: "As we execute our strategy we will keep under review the capital we hold and, if it appears to the board to be in the interests of the company and shareholders, we may seek to neutralise the effects of the scrip dividend. He is not, however, on track to meet his target to increase the return on equity - a key measure of performance for shareholders - from 8.4% to between 12% to 15%. By 12 noon the shares were up 1% at 754p.
"Over the next three years we will focus discretionary growth of risk-weighted assets in our priority faster growing markets and commercial banking. We will also implement global standards, invest in world-leading risk and compliance capabilities and de-risk our operations in higher risk locations," said Gulliver. The job cuts are part of a plan to seek additional cost savings of $3bn (£1.9bn) between 2014 and 2016 but even so Gulliver loosened a key efficiency measure - the cost-income ratio – from the 48% to 52% range he had set previously to "mid 50s".
Unlike many European-based banks which are under pressure to find ways to build up more capital, HSBC is now preparing the way to pay out larger dividends to shareholders and might begin share buybacks.
HSBC is already the second largest dividend payer in the FTSE 100 – paying out £4.4bn last year – second only to oil company Shell. But the bank would need approval from the Prudential Regulation Authority to pay more dividends and conduct share buybacks, probably after asking shareholders for approval at the annual general meeting next May.
Gulliver is focusing the bank on faster-growing markets with a focus on commercial banking rather than high street banking.
The proportion of earnings retained for capital is being reduced to 45% from 50% allowing 40%, rather than 35%, to be paid out to shareholders and 15% being used to pay bonuses to the remaining staff. Share buybacks could start in the middle of next year as the bank attempts to control the number of shares in issue because 30% of its shareholders, particularly in Hong Kong, receive their dividends in shares (known as a scrip dividend) rather than cash.