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HSBC said yesterday that Hong Kong will not be spared as it cuts 30,000 jobs worldwide and seeks to re-focus on emerging markets.
The 13th-floor conference room where HSBC made the announcement was chock-a-block, and there were as many photographers and video cameras as reporters, reflecting how much share of mind HSBC wields in Hong Kong.
Valiantly, Stuart Gulliver, HSBC’s group chief executive, tried to keep the focus on more positive news. “I hope the discussion today will focus on the Asia-Pacific operations,” he said as he introduced the bank’s numbers. “I’m pleased with the results, which mark the first step in the right direction of what will no doubt be a very long journey,” he said, echoing the remarks he had made on Monday, when HSBC declared a net profit of $9.2 billion for the first half of 2011.
The assembled media had little appetite for such stuff and were clearly more interested in asking about the huge staff layoffs, which Peter Wong, CEO for Asia-Pacific, tried to deflect by saying that a consultant was studying implications of the job reductions and that he could not add anything specific yet.
But HSBC’s executives found it difficult to shift the topic as local reporters were keen to establish whether Hong Kong would suffer any redundancies. Gulliver clarified that the 30,000 job cuts will take place over three years and will be across locations, which is to say that Hong Kong will also see its share. The plan is intended to make support functions across locations more efficient, he added.
“We need to restructure rather a large bureaucracy we’ve built up over the last many years, which makes us less nimble,” said Gulliver.
On the upside, HSBC will add around 15,000 people in key growth areas during the next three years across 28 growth markets, including Brazil, Mexico, the Gulf countries and Asia-Pacific. “We continue to invest in revenue-producing areas while ensuring that our risk-management functions remain well staffed,” said Gulliver. Wong added that, despite the war for talent in Asia, HSBC was managing to retain its people and he attributed this to the career growth prospects the bank provides.
“We’ve made a profit before tax of $6.8 billion, which is more than half of group profits,” said Wong, referring to the bank’s Asia-Pacific performance. “This is a direct result of the strategy we established last year to increase our net interest income and build deeper relationships with customers to do more business with them.”
Efforts to diversify the revenue stream were also yielding results, Wong added, pointing out that Hong Kong contributed less than the rest of Asia-Pacific for the first time.
HSBC’s 12.3% return on equity has been calculated under Basel II. Recalculated to take into account the more stringent capital requirements of Basel III, this falls to between 10% and 10.5%, Gulliver said. “Or, to put it differently, we need to make another $2 billion, up to $13.5 billion from $11.5 billion currently to achieve 12% RoE on a Basel III basis,” he added.
“No flagship commercial or residential properties will be disposed of,” said Gulliver, quite categorically, at one point. He was perhaps sending a signal that 19 Middle Gap Road will continue to be the taipan house for the foreseeable future.
Despite being down 12% year-on-year, global banking and markets (GBM) accounted for 42% of profits and was once again the division that made the single-biggest contribution to HSBC’s profits.
This prompted a question about whether these profits are sustainable with the European sovereign debt situation and other macro-environmental stress factors the world is currently facing. Gulliver answered confidently that GBM revenues are sustainable and highlighted that the drop in GBM numbers at HSBC compared favourably to both HSBC’s European peers and US bulge-bracket firms.
He also emphasised that Asia-Pacific, the Middle East and Latin America were big contributors to GBM, with revenues coming on the back of customer flows rather than proprietary trading. “We don’t have a commodities business which many of our competitors do,” said Gulliver. “In past years this has served them well, now it is serving us well.”
