ANOTHER bank, another case of soaring costs. Investors thought it was bad enough when HSBC announced its cost-to-income ratio had hit 58 per cent in the second half of 2010. Gulliver tried to assuage shareholder concern by stating his intention to reduce it to 52 per cent, although he did insist it was a long-term target. About that he wasn’t wrong. In the first-quarter, the cost-to-income ratio hit a whopping 60.9 per cent. The bank’s list of “one-off factors” was as long as your arm, including software spend, a $1bn provision for the mis-selling of PPI, and various restructuring charges. But the bank is bloated.
To find out how the bank intends to fix things, investors will have to wait for tomorrow’s hotly-anticipated strategic review. Much of the cost inflation is also hurting HSBC’s rivals, especially the Asian-focused Standard Chartered. These banks are engaged in what Standard Chartered boss Peter Sands calls a “war for talent”: the demand for top-flight bankers who can speak Cantonese or Mandarin is outstripping supply.
There is still room to prune: the bank’s 300 or so international managers (IMs) – many of whom do the same job in different locations – could be reduced. Being “The World’s Local Bank” is all well and good, but it doesn’t need a cost base to match.