HSBC Holdings Plc is preparing to cut thousands of jobs as part of a revamp to be announced by Chief Executive Officer Stuart Gulliver next week, according to a person with knowledge of the matter.
The lender is under pressure to reduce costs and reverse a decline in profit after a year that saw HSBC being fined for manipulating currency markets and embroiled in a tax-avoidance scandal in Switzerland.
The bank has yet to set a target for the number of jobs being cut and will instead focus on how to reduce costs when it gives details of the plan on June 9, the person said. Sky News, citing unidentified people with knowledge of the matter, said the bank may cut between 10,000 and 20,000 out of 260,000 employees. Many of those will come from the investment bank.
“This is a very big day for them because it’s been an ugly year so far, an annus horribilis,” said Chris White, who helps oversee 3.9 billion pounds ($5.9 billion), including HSBC shares, at Premier Asset Management Plc in Guildford, England. “There’s going to be quite a big restructuring in their investment bank, and I think you might find them closing down parts that will never make a satisfactory return.”
The stock rose 0.4 percent to 626.7 pence as of 1:36 p.m. in London trading. The shares have gained about 3 percent this year, lagging the 6.7 percent gain by the FTSE 350 Banks index.
After HSBC’s profit fell 17 percent last year, Gulliver said parts of the investment bank and national divisions that don’t offer sufficient returns may face “extreme solutions.”
HSBC is in talks to sell its operations in Brazil and Turkey. The lender will probably select a preferred bidder for its unprofitable Brazilian unit as early next month in a sale that may raise about $4 billion, people with knowledge of the plan said last month.
The lender doesn’t report the profitability of individual business lines within the investment bank, which accounted for 32 percent of pretax profit and 70 percent of assets in 2014. Within HSBC’s markets division, foreign exchange generated the most revenue at $2.9 billion, followed by rates at $1.6 billion and equities at $1.2 billion last year. Credit was the worst performer with revenue of $567 million, a 29 percent decline from 2013.
“Cutting investment bankers is easier and a quicker hit than reducing things like branch exposure, and it may be viewed as more politically acceptable,” said Julian Chillingworth, chief investment officer at Rathbone Brothers Plc, which manages 27 billion pounds, including HSBC shares.
HSBC cut its profitability target to a return on equity of 10 percent in February, from as much as 15 percent. Last year, the measure fell to 7.3 percent from 9.2 percent in 2013.
Costs are also increasing as a proportion of revenue, rising to 67.3 percent in 2014 from 59.6 percent a year earlier, missing HSBC’s target of 48 to 52 percent set in 2011. Europe was the worst performer by this metric, reporting a 93.7 percent cost-efficiency ratio compared with 44 percent in Asia, the best.