Non-core disposals top lender’s agenda
Pressure mounts on CEO to break up bank as part of efforts to ramp up profitability, returns
HSBC Holdings CEO Stuart Gulliver, up against rising capital demands and a sluggish global economy, is facing calls to break up Europe’s largest bank after saying profitability will be lower.
Gulliver, who is also struggling to contain a tax-evasion scandal at HSBC’s private bank that he said brought “shame” to the company, reported 2014 earnings that missed analysts’ estimates, driving the stock down almost 5 per cent.
The CEO said parts of the investment bank and some national divisions don’t offer sufficient returns and may face “extreme solutions”.
He cited Brazil, Mexico, Turkey and the US as potential markets for disposals, among 74 countries where HSBC operates. The bank has more than 250,000 staff, even after exiting 77 businesses and cutting some 50,000 jobs in Gulliver’s four-year tenure. HSBC is the largest European bank by market value, leaving it exposed to the toughest regulator scrutiny.
“The most obvious solution is to break the bank up, as the evidence suggests that the bank is too big to manage,” said Ed Firth, a London-based analyst at Macquarie Group Ltd. in London. “It’s difficult to get around the numbers.”
“There are no sacred cows,” Gulliver said. “We’re still on a journey to simplify the firm. I don’t rule out that we might make more disposals,” he said, adding he didn’t accept that the bank is too large to be manageable and he still believes in the universal banking model.
Unimpressive target
Lower margins
67 % cost-efficiency ratio in 2014, up from 60% in 2013.
Return on equity, a measure of profitability, fell to 7.3 per cent in 2014 from 9.2 per cent. HSBC said it’s looking for the measure to exceed 10 per cent.
“Targeting a 10 per cent return on equity is hardly market-leading, is it?” Macquarie’s Firth said.
The bank’s cost-efficiency ratio — a measure of costs versus revenue — jumped to 67 per cent last year from 60 per cent in 2013. Adjusted revenue was little changed at $62 billion in 2014 from the previous year.
Though headquartered in London, HSBC still makes most of its earnings in Asia and grew into an emerging-market giant through decades of dealmaking.