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Massive Job Cuts Likely at HSBC

Zacks Equity Research

As per The Financial Times, HSBC Holdings plc (HBC) is set to slash thousands of jobs worldwide as part of its strategic overhaul. The announcement is likely to come soon at an investors’ day in the next couple of months.

There is no official word on the number of layoffs but the expectation is around 5,000. Under its new CEO, Stuart Gulliver, HSBC has resorted to restructuring on a large scale. Since 2011, the company has been rationalizing its operations to focus on core businesses and control the spiraling expenses. Consequently, HSBC has achieved its target of $2.5–$3.5 billion of cost savings by 2013, way early by declaring $3.6 billion of annual savings with its 2012 results.

Over the next couple of years, HSBC is likely to divest roughly 10 of its non-core businesses, in addition to the 49 businesses already sold since 2011. However, the company remains far from achieving the targeted cost-income ratio in the range of 48%–52%.

For 2012, the ratio stood at 62.8%, increasing mainly due to the $1.9 billion fine the company paid for money laundering during the period 2004–2010. The investigation revealed substantial lapses in the bank's anti-money laundering compliance. This resulted in a worldwide displacement of funds from riskier nations through the bank. Controversial transactions pertaining to its Iranian clientele and the illegal narcotics trade in Mexico drew maximum attention.

The latest round of job cuts would further reduce the workforce, which at present is 260,000, falling from 302,000 over the past couple of years. The job cuts would deepen further if the company resorts to outsourcing the in-house software development task.

Besides HSBC, several other global banks are resorting to job cuts in order to contain rising costs given limited top-line expansion opportunities. In Feb 2013, JPMorgan Chase & Co. (JPM) announced to eliminate overall 19,000 jobs (about 7.3% of the total workforce as of Dec 31, 2012) by the end of 2014.

In addition, in Dec 2012, Citigroup Inc. (C) came up with the decision to restructure its operations, which would ultimately result in over 11,000 layoffs. Further, in Oct 2012, UBS AG (UBS) had announced nearly 10,000 job cuts to reorganize business and split its investment bank.

Currently, HSBC retains a Zacks Rank #3 (Hold).

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