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2nd August 2011

HSBC - expense cuts not straight to the bottom line
Opinion

HSBC provided some details of its expense cuts that were promised earlier this year within its half year report. The firm promised expense cuts of between $2.5bn and $3.5bn by 2013 earlier this year.


The first thing that became obvious is that much of the expense cuts are from the sale of retail operations. Therefore whilst acknowledging that the units are low profitability, the expense cuts come with a loss of income as well, so this is not circa $3bn transferred to the pre-tax profit line of the income statement. The best example of this in practice is the recent media headlines mentioning 30,000 job cuts at HSBC . Whilst this makes a sensational headline it is not entirely accurate, a better description would be: HSBC will employ 30,000 less. The bank is instigating a 5,000 job cut amongst ongoing operational units and 25,000 in retail operations that will in the main be transferred with the sale of the units. The sale of nearly 200 branches in the US to First Niagra is a first step in this process.


The 5,000 actual cuts is not new cuts either, with much of the reduction previously announced. It includes restructuring in Latin America, the US, the UK, France and the Middle East. In answer to questions HSBC said that it did not envisage further UK job cuts this year beyond those already announced.


Of course, the bank intends to increase revenues in other areas to make up for the fall in retail banking revenues - and more. It mentioned success in wealth management particularly in Asia and records funds under management.

[Newslink: See HSBC profits up on lower tax and lower losses
and
Newslink: HSBC Sells US retail branches to First Niagara ]