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HSBC’s job cuts make bank leaner, not better

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The luxury (or curse) of large modern offices is that so many people spend so much time in meetings or on Facebook. This also explains the curious phenomenon that mass firings do not tend to do any damage. What on earth did the 30-odd thousand bankers eliminated from HSBC Holdings PLC since 2011 do all day long? The same question might be asked of the potential 14,000 additional job cuts announced on Wednesday by chief executive Stuart Gulliver.

HSBC has been right to concentrate on costs for the last two years. As well as in-house culling, the lender has sold or exited more than 50 businesses with around 15,000 employees. Revenue growth is getting harder to come by. HSBC's compound annual revenue growth for the last five years is just 1.2 per cent. That also explains why even though costs are being reined in, the lender's cost to income ratio has remained fairly flat at about 65 per cent for last three full years. Mr. Gulliver now targets this ratio at 55 per cent in 2014-2016.

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Banks are increasingly desperate to prove they are still growth stocks. At least HSBC is more exposed than most to emerging markets. But the reality is that the biggest lenders seem ever more utility-like. Soggy top lines are being met with a renewed focus on efficiency and returns. Excess capital is being prioritised in the direction of shareholders. HSBC's payout ratio, for example, increased from 47 per cent in 2010 to 55 per cent last year. Higher dividends do not make a company more valuable, but crisis weary investors probably appreciate ever more cash in their hands.

Of course, big banks still run with ten times the risk weighted assets relative to capital. Hardly utility like. They also have a huge divergence of returns on equity between businesses. But at banks such as HSBC, change does seem to be in the air.

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