WHEN HSBC chief Stuart Gulliver told investors in May that the bank had a “cost problem”, few expected him to wield the axe quite so dramatically.
But he insists that casting out middle managers to the tune of 30,000 in gross job cuts is still not enough: “It will be a very long journey,” he warned yesterday. Given that the bank’s return on equity came inside its 12-15 per cent target range, that might seem a tad pedantic.
But not once you factor in the wave of regulatory reform sweeping through the banking sector. Gulliver revealed that under Basel III rules, the bank’s RoE would have been a less inspiring 10.5 per cent.
“We would have needed to make an extra $2bn this half-year to hit our target under Basel III,” he said. Few other banks have been quite so frank.
Still, analysts are optimistic, upgrading their price targets left and right yesterday. They were pleased by the bank’s suggestion that net interest margins are on the way up despite being eroded this year by its US business and encouraged by its shift towards drawing more on higher-growth markets for revenues.
But it still pays to be cautious. Costs in Asia have been hit by wage inflation, which is expected to continue even as China slows, due to the concentration of worker-hungry banks in new financial centres.
And Gulliver’s “reasonably strong confidence” that the Chinese government can engineer a soft landing could prove misplaced.
He still has a lot to prove.