HSBC: The ‘Too Big to Jail’ Bank Is Gathering Its Spoils and Heading Home

HSBC

HSBC, a bank which was said to be ‘too big to jail’ by none other than Eric Holder, the former U.S. Attorney General, is now gathering its spoils and possibly heading home. Holder had said that the U.S. Department of Justice had not prosecuted HSBC and other major financial institutions for their involvement with the drug cartels in Mexico, because of their enormous size and proportions. Stuart Gulliver, the current Group Chief Executive, had also mentioned that the bank’s involvement in other tax evasion cases had damaged its reputation.

Along with cutting 50,000 jobs globally, it has been reported that HSBC is considering relocating its headquarters from London to some other place in Asia. The Hongkong and Shanghai Banking Corporation Limited was established in Hong Kong in the year 1865, when it was a colony under the rule of the British Empire. It is the founder of the HSBC Group and a leading subsidiary of HSBC Holdings PLC, which is presently based in London.

HSBCHSBC has decided to axe its investment bank to reduce its risk-weighted assets by a staggering $290 billion. The bank will also layoff close to 50,000 of its employees globally. This, as per the bank, is its efforts to reduce cost inputs and improve its performance, which has recently been sluggish. HSBC is currently the biggest bank in Europe and the third largest bank in the world by assets. Information about job cuts and reduction in the size of its investment bank was shared by HSBC on Tuesday, June 9. This announcement to the Hong Kong stock exchange was made before Gulliver was scheduled to share details about his second major strategic plan since he took office in 2011 in a presentation to analysts and investors.

Almost a fifth of HSBC’s workforce will be affected by the announced job cuts. Close to 25,000 people presently on the payroll of HSBC will be rendered jobless due to closure and sale of the lender’s Brazil and Turkey units. Additionally 22,000-25,000 layoffs would be taking place from branch closures and the consolidation of the back office and IT operations. HSBC has systematically been reducing its staff numbers over the last five years. The latest job cuts will reduce its full-time equivalent staff number to almost 208,000. This is way below its total strength of 258,000 in 2014 and 295,000 in 2010. The closure of its operations in Brazil and Turkey, and talks of relocating its headquarters from London to Asia, could be a hint that HSBC, a bank which was said to be ‘too big to jail’ is now gathering its spoils and possibly heading home.

HSBCIt was also said that after completing the job cuts by the year 2017, HSBC will start the recruitment process, especially in the bank’s compliance division and growth businesses. However, the detail about the exact number of hirings that are scheduled for 2017 was not disclosed. Hames Antos, Analyst, Mizuho Securities Asia, said that slaughtering of the bank’s staff is not the solution that HSBC is looking for. The job cuts will not help in the long-term unless the top management works towards making the bank less complex. HSBC said that it will reduce its global banking and markets division to less than a third of its current size. The bank’s present balance sheet is around $2.6 trillion. This is a major shift for the lender, although an expected one.

Reportedly, the investors had been demanding more extreme cuts in HSBC’s global banking and markets division. The returns on these sections have suffered hugely due to tough market conditions. The bank has now set a new target of above 10 percent by the year 2017 for its return on equity. This is below its previous estimates of around 12-15 percent by the year 2016. The drop in these earnings estimates, coupled with the announcement of job cuts and the talk of moving its headquarters to Asia, hints that HSBC, a bank which was said to be ‘too big to jail’ is now gathering its spoils and possibly heading home.  Apart from being embroiled in tax evasion scandals recently, the bank has also been accused of providing a safe haven for black money by countries like India.

By Ankur Sinha

Sources:
The Washington Post-The bank that was ‘too big to jail’ will lay off 25,000 workers
Business Insider-HSBC is cutting 50,000 jobs
The Indian Express-HSBC to cut up to 50,000 jobs from its payroll, slash investment bank

Photo (1) Courtesy of Elliott Brown’s Flickr Page-Creative Commons License
Photo (2) Courtesy of Michael Fleshman’s Flickr Page-Creative Commons License

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