30,000 lay-offs, and more at risk

PUBLISHED : Tuesday, 02 August, 2011, 12:00am
UPDATED : Tuesday, 02 August, 2011, 12:00am

HSBC could post further job cuts on top of the 30,000 lay-offs announced yesterday if Britain's Independent Commission on Banking (ICB) imposes new regulations that could dampen the performances of banks.

The 30,000 laid off represent about 10 per cent of HSBC's 296,000 employees.

Shares of HSBC Holdings rallied yesterday after the bank surprised markets with better-than-expected first-half profit, which rose 34.7 per cent from the same period last year to US$9.76 billion.

But morale remained low among staff. Chief executive Stuart Gulliver said 25,000 positions would be eliminated by 2013, in addition to 5,000 announced over the weekend.

Of the 25,000 job cuts, none are due to disposals; this means lay-offs caused by HSBC selling its upstate New York branches are not included. And the figure does not take into account what the ICB may recommend on September 12, which could affect the bank's headcount, Gulliver said.

The ICB said in June that British banks would be forced to ring-fence their retail divisions from their investment-banking businesses, maintaining them as separate operations, so as to make the sector safer.

HSBC has 55,000 staff and about 1,290 branches in Britain. It will cut 700 jobs in France, 700 in Britain, 1,400 in Latin America and 1,900 in the United States. Howver, it plans to add between 4,000 and 5,000 staff in emerging markets.

In Asia, there will also be some restructuring, but no specific quotas have been set.

Gulliver, who took over as chief executive at the end of last year, said the bank would keep hiring in markets and areas that generate revenue.

'We would like to end up with more front-office staff, with more customer-facing and revenue-driven [staff], and [fewer] people effectively in a middle-office type of bureaucratic role,' said Gulliver.

In the Asia-Pacific, the bank hired about 1,500 people in the first half, and in Brazil, about 800. HSBC has a staff turnover of 10 to 15 per cent, or 30,000-plus a year. Gulliver said some of this turnover would count as jobs eliminated.

Morale has been low, especially in support areas, one HSBC employee said yesterday.

In May, the bank told its investors it aimed to save between US$2.5 billion and US$3.5 billion in costs by the end of 2013, with part of the savings coming from re-engineering after assessing its information technology and its operating models for retail banking, wealth management and commercial banking.

HSBC also said it was aiming at raising its return on equity (ROE) to the 12 to 15 per cent range. ROE measures a bank's profitability against shareholders' capital.

Gulliver said part of the reason the bank plans to cut 30,000 jobs was because HSBC had missed its target.

ROE rose 3.4 percentage points from the second half of last year, to 12.3 per cent. But Gulliver said this figure was calculated based on the Basel II regulations on capital adequacy and liquidity issued by members of the international Basel Committee on Banking Supervision. The target he had set was based on Basel III, the new global regulatory standard.

HSBC needed to make US$13.5 billion in first half pre-tax profit, and double that amount for the full year, if it wished to meet its target. But the bank recorded only US$11.5 billion in pre-tax profit in the first half after several sell-offs, shut-downs and restructurings.

HSBC closed retail banking businesses in Russia and Poland. It disposed of three non-strategic insurance businesses in Britain, Mexico and Bermuda. It also conducted a strategic review of its US credit card business and disposed of 195 retail branches in the US.