HSBC is targeting savings of up to $3.5-billion over the next three years and planning to scale back underperforming retail and wealth management operations in an effort to become more profitable and increase shareholder value.
At an investor conference two days after the bank released disappointing first-quarter earnings, HSBC said it was conducting a "strategic review" of its US credit card business and branch network, which could lead to a sale. It will also dispose or close retail operations in many other countries, including Russia, if they fail to deliver the required returns.
Instead, there will be a push to expand in commercial and investment banking and more closely align the services these two businesses offer corporate clients - a move that is expected to add $1-billion of revenue.
Stuart Gulliver, the new chief executive of Europe's largest bank by market capitalization, is hoping to convince investors and analysts that he is serious about driving down costs and restructuring disappointing units.
He signalled a retreat from HSBC's famous advertising slogan - "The World's Local Bank" - saying the phrase's retail banking focus was misleading, especially now that much of the group's expansion strategy would be focused on building out corporate banking.
"Do not mistake our marketing strapline for our strategy," he said.
He suggested that the bank's retail banking operations in many of the 87 countries where HSBC is currently present "don't fit" with the group's broader strategy. Wealth management would be pared down to just 18 countries - although the bank is looking to seize $4-billion of additional revenues by building out its wealth proposition in key fast growing markets.
Mr. Gulliver's plan to seek savings of between $2.5-billion and $3.5-billion by the end of 2013 would enable the bank to invest further in higher growth regions and raise the return on equity from 9.5 per cent last year to between 12 per cent and 15 per cent.
HSBC set out a five-filter assessment of whether it should stay in a country. To make the grade, a business would have to offer international connectivity in an economy that would matter over the next 25 years. Then, it would have to show sufficient profitability with a cost-income ratio in line with the group's 48-52 per cent target, and generate surplus liquidity to the group.
Mr. Gulliver said it was "absolutely critical" to remain in the US, but said the cards and upstate New York retail network were not core businesses. He also stressed his commitment to staying in developed markets such as the U.K., France and Germany as well as growing in emerging markets.
In Asia, which Mr. Gulliver said was "our heartland", he gave little detail of expansion strategies. He stressed that none of the bank's big Chinese financial stakes in Hang Seng, Bank of Communications (Bocom) and Ping An was for sale. But he did signal that Bocom was the key priority, saying: "We will continue to expand our Bocom partnership."
In Latin America, the bank would reallocate capital away from underperforming operations, he said, without being more specific.
HSBC's cost efficiency ratio - which is currently 55.2 per cent - is far higher than Mr. Gulliver's goal of 48 to 52 per cent.
Meanwhile, Douglas Flint, chairman, told investors that continued low interest rates were important to economic recovery and the resolution of over-indebtedness in the U.K., U.S. and Europe. That is of special importance to HSBC in the U.S., as executives fret that there could be another round of mortgage defaults, which could further damage the bank's profits in the US.
Mr. Gulliver believes strongly in the potential of small- and mid-size U.S. companies to become exporters with careful nurturing from HSBC. He has personally worked with the Brookings Institution think-tank in Washington to generate ideas on that front.
In Asia, he said the bank would continue to seek a Shanghai listing but gave no timetable. Asia will also be a major focus of efforts to capture $4-billion in additional revenues in wealth management.
Senior management at HSBC maintain that as liquidity in the global financial system becomes more precious, the bank will be in a far stronger position than its rivals. HSBC has the largest deposit base in the world, if Chinese and Japanese banks are excluded.