HSBC to cut retail banking to save up to $3.5 bn

Hong Kong/London: HSBC Holdings Plc, Europe’s biggest bank, is looking to slash up to $3.5 billion in costs by cutting the scale of its wealth management and retail banking businesses, it said on Wednesday.
Cutting costs would help the bank reach a cost efficiency ratio of 48-52% by 2013, HSBC said in a statement posted on the Hong Kong stock exchange.
“We will increase capital deployment discipline, directing investment to faster growing markets and businesses as we scale back elsewhere,” HSBC chief executive Stuart Gulliver said in a statement.
It was also conducting a strategic review of its credit card business in the United States, Gulliver said. If sold, HSBC could release $25 billion from the operations, analysts at Barclays Capital had said before the statement.
The extent of Gulliver’s task to streamline and revive the bank was laid bare on Monday, after a jump in costs helped drag quarterly profit 14% lower.
HSBC would focus its wealth management business in 18 of the most relevant economies, and limit retail banking to markets in which it can achieve profitable scale, it said. Currently, the bank has operations in about 87 markets.
HSBC did not identify the 18 economies it would focus on.
The bank would also target a dividend payout ratio of 40-60%, while maintaining its return on common equity at 12-15%, the bank said.
That “could free up both some costs and also some capital to invest into higher-growth markets like Asia or Latin America,” said Tom Quarmby, analyst at Barclays Capital in Asia.
Gulliver, 51, was named CEO in September after a damaging boardroom power struggle, and had been expected to put most immediate attention on the retail arm, especially in the United States.
The bank made no mention of its 16% stake in Chinese insurer Ping An Insurance (Group) Co of China Ltd , which could potentially deliver a $5 billion gain if sold.
After a disappointing first-quarter update, HSBC shares could be vulnerable, “unless management can provide a convincing case at the strategy day as to why returns can be improved,” said Robert Law, analyst at Nomura in London.