HSBC said it will make thousands of job cuts and retrench in more areas of investment banking as part of plans to cut staff costs by 8% to save US$1.5bn in annual expenses, in a bid to improve returns even after beating expectations with record annual profits for 2024.

CEO Georges Elhedery has shaken up structure and leadership since taking over in September to focus on areas of strength, and last month the bank said it would quit M&A advisory and equity capital market activities in the UK, the rest of Europe and the Americas.

Elhedery said on Wednesday that retreat includes shutting down its corporate broking business in the UK, where it was estimated to be broker to 20 of the biggest 350 publicly listed firms in the UK, including six in the FTSE 100. He said some other areas of investment banking will be caught in the fallout, such as equities trading and research. The bank laid off about 40 bankers in Hong Kong this week, sources told IFR.

Elhedery said the plan to slice 8% from staff costs would equate to fewer than 8% of staff being axed, because many of the affected positions will be more senior and have higher compensation. He said a headcount target had not been set. HSBC had 211,304 staff at the end of December, decreasing 9,500 during last year due to the sale of businesses in Canada, France and Argentina, so 8% would be almost 17,000 people.

HSBC plans to keep M&A and ECM activities in Asia and the Middle East and continue global debt capital markets and financing, all areas where it is a strong player. Elhedery was confident the retrenchment from some parts would not impact those priority areas.

“The decision has been to focus our capabilities in investment banking in areas where we have competitive positioning and in many cases leadership," he told reporters on a conference call. “Our deep experience in these markets [Asia and Middle East] and our deep understanding of local rules and regulations, of listing rules and distribution, mean we can genuinely differentiate and be competitive in these areas for customers within the region and for international customers looking at the region as a target for M&A and ECM."

But he said that wouldn't include helping a customer in Asia do M&A in Europe. “This business is not for us. We haven’t been very effective at delivering it and we’ve decided to focus our strength on where we are most relevant for our customers for the vast majority of their business."

That includes DCM, leveraged acquisition finance and infrastructure finance, and all areas of transaction banking – spanning foreign exchange trading, trade finance, global payments, FX and securities services – where it makes far higher revenues than for advisory or underwriting work.

The bank is setting aside US$1.8bn to cover severance and other restructuring costs over the next two years. It expects a majority of the costs to be incurred this year but only US$300m of the saving to arrive in 2025, with most coming in 2026.

In addition to the cost cuts, HSBC plans to redeploy US$1.5bn of costs from less important areas to priority spots. Much of that will involve investing in its wealth business in Asia and the UK.

“Hong Kong is on track to becoming the largest cross-border wealth hub in the world, ahead of Switzerland, before the end of this decade, and we’re in a privileged position to be able to capture most of that inflow," Elhedery said. The bank will invest in wealth centres and relationship managers for that, and also aim to grow its wealth business in Singapore, the UAE, mainland China and India.

He said other areas of investment include transaction banking, especially for the technology required to stay ahead, and business banking in the UK, where he said the bank has "been punching below our weight and we need to catch up".

The bank will consider deals. “We will always look at bolt-on acquisition opportunities … but it’s a high bar," Elhedery said.

Record profits

Europe's biggest bank reported a record annual pretax profit of US$32.3bn for 2024, up 6% from the year earlier. The profit included gains and losses from the disposal of its Canadian and Argentinian businesses and the recycling of foreign currency reserve losses. Stripping out exceptional items and on a constant currency basis, pretax profit was up 4% at US$34.1bn.

Revenue for 2024 was flat from the year earlier at US$65.9bn, although stripping out notable items, it was up 5% to US$67.4bn.

For the latest October–December quarter, HSBC reported a pretax profit of US$2.28bn, up from US$977m a year earlier, although operating income fell 11% to US$11.6bn. Global banking and markets' Q4 operating income of US$4.38bn was up 17% on the year, to lift the unit's pretax profit by 37% to US$1.4bn.

Investment banking revenues in Q4 rose 20% to US$265m; FX revenues dipped 4% to US$944m; debt trading revenue doubled to US$155m; equities trading revenue rose 16% to US$173m; and securities financing income rose 58% to US$476m.

For the full year, investment banking fees improved by 5% on the year to US$1.08bn; FX revenues dipped 4% to US$3.97bn; debt trading revenue was up 18% to US$968m; equities trading revenue jumped 61% to US$891m; and securities financing income rose 36% to US$1.52bn.

Elhedery said the 2024 results provided "a firm financial foundation" for his strategic plan, which is based on simplifying leadership structure and removing duplication of costs. He has created a new corporate and institutional banking business that draws together its investment bank and commercial bank, and created an international wealth and premier banking arm. There are also separate divisions for its two "home" markets of Hong Kong and the UK.

The bank said it will target a "mid-teens" percent return on average tangible equity for this year, 2026 and 2027. Its RoTE was 14.6% for 2024, or 16% stripping out exceptional items, both little changed from 2023.

Source: IFR