HSBC <HSBA.L> pledged a new era of higher dividends on Tuesday, laying out plans to slash nearly one in five jobs and shrink its investment bank by a third to combat sluggish growth across its sprawling empire.
Chief Executive Stuart Gulliver has made it his mission to boost profits since taking the helm of Europe's largest bank by assets in 2011 but his efforts have so far been foiled by high compliance costs, fines and low interest rates.
In the bank's second big overhaul since the financial crisis it will speed up a cull of unprofitable units and countries by cutting almost 50,000 jobs - half of them from selling businesses in Brazil and Turkey.
It will cut its assets by a quarter, or $290 billion on a risk adjusted basis (RWA) by 2017, and slice $140 billion from its investment bank, which will subsequently make up less than a third of HSBC's balance sheet from 40% now.
Gulliver also pledged higher payouts for investors. "I believe that we are in the foothills of another prolonged period of dividend growth for the firm," he said. He noted that the bank's dividend had grown for 17 years from 1991 to 2008.
But investors were cautious about how HSBC would translate job cuts into meaningful savings given the higher cost of doing business in a tougher post-crisis business environment marked by new rules on risk and compliance.
"Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex," said James Antos, analyst at Mizuho Securities Asia.
HSBC shares dipped 1.1% by midday, pressured also by disappointment after the bank cut its target for return on equity to greater than 10% by 2017, down from a previous target of 12-15% by 2016.
European rivals including Barclays <BARC.L>, RBS <RBS.L>, UBS <UBSG.VX> and Deutsche Bank <DBKGn.DE> have axed thousands of jobs, but many are facing fresh calls for more radical cuts in investment banking given tough operating conditions.
Some investors and analysts reckon HSBC should consider breaking up, on the grounds that extra compliance and regulatory costs outweigh the benefits of scale.
But Gulliver defended the bank's global footprint and universal strategy.
"The answer isn't the network should be broken up, the issue is there are four or five countries that are a major problem," Gulliver told investors and analysts during a five-hour presentation. He cited Brazil, Turkey, Mexico, the United States and Britain as countries where weak performance or high conduct costs and fines had destroyed value.
He estimated the bank achieved $34 billion of revenue benefits from its size and diversity, including $22 billion of client revenue stemming from its international network.
NO SACRED COWS
Jobs will be cut by introducing more automation and consolidating IT and back office operations, and the bank said it would close 12% of branches in its seven biggest markets. It has 5,800 branches globally.
Gulliver said about 7,000-8,000 job cuts would be in Britain, or one in six UK staff. The UK retail banking business would also be rebranded to meet new rules designed to ringfence customer deposits from riskier investment banking operations.
Gulliver said it was too early to say whether the group would keep the ring-fenced bank, which will be headquartered in the English city of Birmingham and account for about two thirds of UK revenues, or $11 billion.
The bank also set out 11 criteria for helping it decide whether to move its headquarters from London to Asia, likely Hong Kong. They include factors such as economic growth, the tax system, government support for the growth of the banking system, long-term stability and an ability to attract good staff.
HSBC said it would complete the review of the possible move by the end of the year, and its strategy update clearly marked a greater shift to Asia, where it plans to redeploy assets cut in Europe and the Americas.
In particular, it plans to increase the size of its insurance business and its presence in China's Pearl River Delta, a region in southern Guangdong province into which Beijing wants to integrate Hong Kong and which already represents a major economic hub.
"The cuts provide significant headroom for the group to fund asset growth in Asia and absorb RWA inflation, whilst protecting its ability to pay a progressive dividend," said Gurpreet Singh Sahi, analyst at Goldman Sachs.
The sale of businesses in Brazil and Turkey, where HSBC is the sixth and 12th biggest bank respectively, will cut $110 billion of risk-weighted assets.
Gulliver said the sales showed there were "no sacred cows".
The bank is closely monitoring efforts to turn around its businesses in the United States and Mexico with Gulliver making fortnightly calls to the management in both countries.
Overall, HSBC will push through annual cost savings of up to $5 billion by 2017. It will cost up to $4.5 billion in the next three years to achieve the savings.
(Additional reporting by Donny Kwok and Matt Scuffham; Editing by David Clarke and Sophie Walker)