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[HONG KONG] HSBC Holdings Plc will eliminate as many as 50,000 jobs through 2017 by shrinking its global reach as Chief Executive Officer Stuart Gulliver seeks to cut annual costs by about US$5 billion to restore profit growth.
Europe's largest bank plans to reduce full-time employees by 22,000 to 25,000, or about 10 percent, it said in a presentation to investors on its website on Tuesday. A further 25,000 positions will be cut through the sale of its Turkey and Brazil operations. The bank left its target for return on equity, a measure of profitability, at more than 10 percent.
Mr Gulliver, 56, is looking to restore investor confidence in a bank battered by a series of scandals and surging compliance costs. Since taking over in 2011, he's announced more than 87,000 jobs cuts, exited about 78 businesses and reduced the number of countries the bank operates by 15 to 73.
"HSBC is a big bank to move and they're definitely moving in the right direction," said Chris White, who helps oversee about 3.9 billion pounds (US$6 billion), including HSBC shares, at Premier Fund Managers Ltd. in Guildford, England. "A lot of it feels like it was broadly as expected."
The shares were little changed at 619.6 pence at 9:30 a.m. in London. They are up about 1.9 per cent this year, trailing a 6.9 per cent gain at Standard Chartered Plc, the other UK bank generating most of its earnings in Asia.
Just months after taking over, Mr Gulliver announced some 30,000 jobs cuts to trim costs by as much as US$2.5 billion. In the latest round, as many as 21,000 of the cuts will be lost in a push for digital banking, automation and branch closures. In the UK, up to 8,000 jobs will be cut, Mr Gulliver said.
Under his plan, the CEO plans to cut risk-weighted assets by about US$290 billion, including a reduction at the securities division to less than one-third of the group's RWAs, and target a return on equity of more than 10 per cent by 2017. The bank cut its ROE target to 10 per cent in February from as much as 15 percent. In 2014, it had an ROE of 7.3 per cent.
At the investment bank, HSBC plans to cut RWAs by a net US$130 billion, or 31 per cent, while "keeping costs flat." The global banking and markets division had a 6 per cent profit gain in the first quarter, as revenue from foreign-exchange rose.
The savings program will cost US$4 billion to US$4.5 billion through 2017, according to the statement.
"We recognise that the world has changed and we need to change with it," Mr Gulliver said in the statement. "I'm confident that our actions will allow us to capture expected future growth opportunities and deliver further value to shareholders."
HSBC, founded 150 years ago in Hong Kong, will also sell operations in Turkey and Brazil, while stepping up investment in Asia, expanding asset management and insurance and focusing on places including China's Pearl River Delta and areas including the internationalization of the yuan.
Jonathan Tyce, a senior banks analyst at Bloomberg Intelligence, said that while it's a "good cost number," the short list of disposals "may have surprised a little."
"Margins are higher" in Asia,'' Mr Tyce said in an interview on Bloomberg Television from London on Tuesday. "Everybody's all over Asia. This is all about improving capital efficiency. You can completely understand the motivation."
With his strategy update, Mr Gulliver is seeking to convince investors that he's the right man to lead HSBC. At Deutsche Bank AG, Germany's largest lender, co-CEO Anshu Jain announced his resignation on Sunday, just two months after presenting a strategic update that investors considered too weak.
"Gulliver is not an idiot," said Chris Wheeler, an analyst at Atlantic Equities in London. "This is quite the opposite to Deutsche Bank as there is tonnes of granularity of where the cost cutting will come, how they're achieving it and why they're getting out of countries."
HSBC has come under pressure to reduce costs and reverse a decline in profit after a year that saw the bank being fined for manipulating currency markets and embroiled in a tax-avoidance scandal in Switzerland.
The bank last week agreed to pay 40 million Swiss francs (US$43 million) to close an investigation by Geneva prosecutors into allegations of money laundering at its Swiss private bank.
In February, Mr Gulliver pledged that underperforming units would face "extreme solutions" after full-year earnings fell 17 per cent and the lender scrapped four-year-old profitability targets, citing a tougher regulatory environment.
HSBC is among the hardest hit by regulator scrutiny, with the Bank of England forcing the largest lenders to separate their consumer from riskier investment banking activities by 2019. It's also been hurt by an increasing bank levy, costing lenders about 5.3 billion pounds over the next five years.
The bank said earlier this year that it's reviewing whether to re-domicile from London because of rising tax and regulatory costs. It will complete its headquarters review by the end of 2015, according to the statement.
"It would be a mistake that HSBC flees the country," Bill Blain, a strategist at Mint Partners, said in an interview with Jonathan Ferro on Bloomberg Television on Tuesday. "This is actually a pretty good place for banks to be."