Cost cuts can’t hide that business is hardly booming

 
Elizabeth Fournier
HSBC has always set itself apart from its UK rivals. With no bailout money and a prescient cost-cutting programme that’s clearly paying off, it’s no surprise that investors drove the shares even closer towards a three-year high yesterday as the bank announced a doubling in profits.

Or is it? Wade past the savings and the drop in bad loans that have bumped up profits, and you hit something of a snag. Revenues across its investment banking and corporate units were basically flat compared to last year, coming in at a weaker-than-expected $18.4bn. HSBC may be better placed to deal with a hesitant global economy, but business is hardly booming.

Gulliver is lucky that cost cuts are in vogue (and that Stuart the Shred doesn’t have quite the same ring to it). He’s already “demised” (to use the silly term one HSBC HR bod made infamous last month) 50 per cent more than the 30,000 staff he had planned on when he launched the reorganisation in 2011, and there may be more to come next week.

Shareholders are likely to react with glee – HSBC is already outperforming the booming FTSE  with a more than 20 per cent rise in its share price in the past year – but they shouldn’t be blinded by the flash of the chopping knife.

The bank is by no means free of the controversies that have dogged its peers. Its UK customer redress programme, which covers various mis-selling provisions, was £106m last quarter. Compliance costs have been driven up by the conditions of its settlement with US authorities following a record $1.92bn fine for allowing itself to be used to launder drug money out of Mexico. Gulliver can only cling on to his turnaround plan for so long.

He’s at the mercy of the global economy, just like the rest of us.