American analogies might scare HSBC investors after the Asia-focused bank’s disastrous foray into US consumer finance. Yet its much-vaunted restructuring plan most closely resembles a classic three-yards-and-a-cloud-of-dust play – the grinding American football strategy where every yard of progress is hard fought. Seven months into chief executive Stuart Gulliver’s three-year plan, there is dust aplenty.
Some progress has been made. Announced disposals will reduce risk-weighted assets by about $50bn. These include large parts of its US business, such as a $30bn credit card book and nearly 200 branches in upstate New York. The bank says there are more deals in the pipeline. This is good. But an unexpected one-10th rise in costs last year has clouded the picture. With costs running at three-fifths of underlying net operating income, the jump makes it harder to realise the bank’s target of between 48 per cent and 52 per cent by the end of 2012. A chunk of the costs were one-offs, such as restructuring and reserving for UK retail customer redress. But nearly a third came from higher staff costs in Asia, caused by the need to pay up to attract and retain staff. This is more worrying: even if revenue growth in those units outstripped rising costs, which it did, it will be hard to cap expenses decisively.
Cutting costs is not sexy but HSBC has never been about the racier side of banking. Together with its size, this has carried it through the global financial crisis. Now its traditionally stolid and geographically segmented character makes a reorganisation along global lines ambitious. The bank’s shares have fallen 14 per cent since the plans were announced. That is only three-fifths of the fall suffered by the Eurofirst 300 banks index. But it is twice the fall in the Bloomberg Asia-Pacific banks index. The reality is that Asia now accounts for three-quarters of HSBC’s profits. Mr Gulliver needs to make more progress on restructuring – while convincing investors that Asian costs are under control – before the dust will start to settle.