Regulation

Can HSBC Hold Itself Together?

"We’re still on a journey to simplify the firm. I don’t rule out that we might make more disposals,” says CEO Stuart Gulliver.
Katie Kuehner-HebertFebruary 24, 2015
Can HSBC Hold Itself Together?

HSBC may break itself up or sell off a considerable number of businesses in the face of rising capital demands and sluggish global growth.

After reporting lower-than-expected 2014 earnings, HSBC’s chief executive Stuart Gulliver said in a conference call Monday that the London-based global banking company might “dispose” of divisions in Brazil, Mexico, Turkey, and the United States, according to Bloomberg. This after the bank has cut roughly 50,000 jobs and exited 77 businesses in four years.

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HSBC CEO Stuart Gulliver

HSBC CEO Stuart Gulliver

“There are no sacred cows,” Gulliver said on the call. “We’re still on a journey to simplify the firm. I don’t rule out that we might make more disposals.”

The management team will be going through a bottom up review of all business units over the next 12 to 24 months.

HSBC reported flat adjusted revenue for 2014, at $62 billion, from a year earlier. Its return on equity fell to 7.3% in 2014, from 9.2% a year earlier, but the company said that it was aiming to push that metric back above 10%. Operational efficiency eroded, as the company’s cost-efficiency ratio rose to 67%, from 60%.

“The most obvious solution is to break the bank up, as the evidence suggests that the bank is too big to manage,” Macquarie Group analyst Ed Firth told Bloomberg. “It’s difficult to get around the numbers.”

UBS analysts cut the banking company’s share rating to neutral from buy, Bloomberg wrote.

Cenkos Securities analyst Sandy Chen told Bloomberg any disposals in the countries Gulliver mentioned would be received well by the market, “because it could relieve both cost and capital burdens.”

“A lot of their global banking and markets probably fails their return on risk-weighted asset hurdles,” Chen said, referring to the unit that houses the investment bank.

Global regulators have proposed requirements for the world’s largest banks to have subordinated debt and other loss-absorbing liabilities equivalent to as much as a fifth of their assets weighted for risk.

Adding to HSBC’s woes recently, CEO Gulliver has faced questions about a $7.7 billion Swiss bank account he held through a Panamanian company until 2003.

In addition, according to leaked files obtained and analyzed by the International Consortium of Investigative Journalists, the Swiss subsidiary of HSBC last decade helped wealthy clients hide hundreds of millions of dollars from tax authorities.

On the HSBC earnings call, Gulliver said the company’s global private banking unit is being overhauled with the implementation of “tough financial crime, regulatory compliance, and tax transparency measures.”

HSBC has also also sold a number of businesses and customer portfolios, including assets in Japan, Panama, and Luxembourg, Gulliver said, adding that “the number of customer accounts in our Swiss Private Bank is now nearly 70% lower than at its peak.”

Photo: World Economic Forum, via Flickr, CC BY-SA 2.0