HSBC turnaround on target, sees revenue boost

Reuters News
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Posted: May 18, 2012 8:50 PM

By Lawrence White and Kelvin Soh

HONG KONG (Reuters) - HSBC doubled the annual revenue boost expected from its turnaround plan to $2 billion, as Europe's biggest bank targets emerging markets and cost cuts to lead its battle to recover from the financial crisis and cope with new regulations.

Chief executive Stuart Gulliver said on Thursday that, one year into the three-year plan, HSBC was on target to meet profitability and cost savings targets.

Gulliver said his biggest external worry "is absolutely how the euro zone plays out and whether Greece stays in ... and, frankly, whether markets take things into their own hands before June 17 (Greek elections)."

HSBC, which makes over three-quarters of its profit outside Europe and north America, coped better in the crisis than many rivals, helped by its strength in fast-growing Asian markets.

It is now facing the same regulatory pressure as competitors to reduce its risks and has conceded it has more work to do to revive its lagging European and U.S. businesses.

"Investors have been skeptical about our ability to get our hands around HSBC. The skepticism was about anybody's ability to move such a large firm and change its direction," Gulliver told reporters on a conference call.

"At the year one report card we can evidence that on things we can control we are demonstrating significant traction. We are delivering with good momentum given a difficult backdrop."

Mizuho Securities analyst Jim Antos in Hong Kong said: "HSBC should come out and be honest about it. In reality, there was a force majeure in Europe blowing up, and they will need more than three years to meet their targets".

HSBC's London-listed shares were down 1.4 percent at 526.8 pence at 0855 GMT, compared with a 0.9 percent lower European bank index. The stock is up 9 percent this year.

The bank has achieved annualized cost savings of $2 billion and expects that to rise to $3.5 billion by 2013, as set out by Gulliver, who is steering the bank back to its roots as a financier of global trade.

It has sold 28 businesses, taking 14,000 staff off its payroll, and releasing about $55 billion risk-weighted assets, the bank said. The sales brought in $5.9 billion.

Having focused on shrinking the bank, analysts and investors expected Gulliver may soon point to where HSBC is expanding.

In addition to its core "home" markets of Britain and Hong Kong, Gulliver identified 20 priority growth markets around the globe, including Brazil, China, and India.

Gulliver a year ago set out to get return on equity - a key measure of profitability - above 12 percent, and cut costs below 52 percent of revenue.

The bank improved on both fronts in the first quarter from last year, with an underlying RoE near 11 percent and cost efficiency at 55 percent.

HSBC said the integration of its four businesses - retail banking and wealth management, commercial banking, global banking and markets, and private banking - would deliver incremental revenue of $2 billion, doubling the target it set last year.

It is moving out of businesses that lack scale, do not make money or do not connect with other areas. There have been big U.S. sales, and smaller moves in Europe, including closures in Georgia, Poland and Slovakia.

HSBC last year sold its U.S. credit card arm to Capital One Financial Corp for $2.6 billion more than the face value of the loans, and in Latin America, it has sold or plans to sell businesses in a string of countries, leaving it to focus on Argentina, Brazil and Mexico.

Asia has not been immune, with divestments in Japan and Thailand so far. It is in talks to sell its retail and wealth management business in South Korea.

RoE, which topped 15 percent each year from 2004-07 before plunging to 4-5 percent in the financial market crisis, will come back under pressure as Basel III regulations come in.

All banks face the same pressure to divert cash to their reserves, and that could cut up to 2 percentage points from HSBC's RoE which reached 11 percent last year and held at that level in the first quarter of this year.

HSBC's Hong Kong-listed shares had their biggest one-day fall this year on Wednesday, losing 3.4 percent, and were last down 0.8 percent.

(Additional reporting by Steve Slater in London and Michael Flaherty in Hong Kong; Editing by Dan Lalor and Ian Geoghegan)