HSBC Lays Out Efficiency, Cost-Saving Programme

Tom Burroughes

11 May 2011

HSBC, which reported a dip in quarterly pre-tax profits earlier this week, is holding group strategy presentations for investors today at which it lays out the target of cutting costs by $2.5 to $3 billion and it aims to focus on wealth management as a major growth area.

The UK/Hong Kong-listed bank said it is targeting a return on common equity of 12-15 per cent over the cycle supported by pre-tax return on risk weighted assets of 1.8-2.6 per cent.

"Our strategy is to be the leading international bank, concentrating on commercial and wholesale banking in globally connected markets. We will also focus on wealth management in 18 of the most relevant economies and limit retail banking to those markets where we can achieve profitable scale,” Stuart Gulliver, group chief executive, said in a statement.

Talking of the bank’s cost savings and efficiencies programme, he said it will “consist of implementing consistent business models in retail banking and wealth management and commercial banking; re-engineering and de-layering global business functions; re-engineering business processes; and streamlining IT”.

"This is not about shrinking the business but about creating capacity to re-invest in growth markets and to provide a buffer against regulatory and inflationary headwinds,” he said.

The banking group reported a Q1 2011 drop in pre-tax profits and a fall in revenues since the same period last year. But profits after tax at the firm leapt by 52 per cent to $4.4 billion - largely because of much reduced tax rates - according to the bank's interim management statement. Reported quarterly pre-tax profits at the bank fell by 14 per cent against the first quarter of 2010, to $4.9 billion. At $5.5 billion, underlying pre-tax profits were down by slightly less - 10 per cent over the same period. However, HSBC posted profits after tax of $4.4 billion, a huge increase of 52 per cent on the first quarter of 2010.

The gulf between pre- and post-tax profits posted exists because the effective tax rates for the group in the first quarters of 2010 and 2011 were 49.2 per cent and 10 per cent respectively, said the bank in its statement. The rate was significantly lower in 2011 because of the recognition of deferred tax assets in the US on foreign tax credits and because of a tax charge on the sale of HSBC Canada in 2010.