HSBC cost cuts expose new CEO’s bigger problem

There's always a case to be made for cost cuts at HSBC. The $160 billion lender employed 214,000 people in June and arguably suffers from duplication across its different bits. Still, new CEO Georges Elhedery has a much bigger job than finding the modest savings that he is reported to be eyeing. Growth is the bank's key challenge.

Elhedery is drawing up plans to axe about $300 million of costs, the Financial Times said on Thursday. The move would hit top management layers, according to the report, suggesting that the cuts could fall most heavily on the London head office rather than client-facing staff around the world. Elhedery may combine two of HSBC's three business lines: the commercial banking division and the global banking and markets unit (GBM).

There's some sense to that idea. The commercial-banking division, which accounted for 39 percent of group revenue excluding corporate costs in the first half of 2024, offers transaction banking services like cash management and trade finance to companies big and small. Meanwhile GBM, which brought in 23 percent of first-half revenue, includes the markets-focused trading businesses and investment banking. But there's some overlap in terms of clients and products. Over the six months to June 30, for example, $676 million or 6 percent of the commercial bank's revenue came from its share of products offered by GBM. Combining the two could save money by sharing risk teams and senior management.

There are downsides to such a combination, though. Jane Fraser, the boss of Citigroup, recently dismantled a business known as Institutional Clients Group, which covered everything from markets to corporate and investment banking. She argued that it increased accountability to have the people running individual business lines closer to the CEO.

There's also a question of transparency: investors could find it harder to get their heads around the performance of a unit that offers everything from small-company banking to underwriting giant debt and equity offerings for multinationals.

Moreover, the modest savings from such a move won't do much to solve Elhedery's main problem: falling rates. Analysts reckon net interest income will fall 7 percent this year and 2 percent next, based on Visible Alpha data. That component of the top line, which measures the difference between the money HSBC earns on loans and securities and the interest it pays on liabilities like deposits, comprised about half of total revenue last year and is dropping as central banks cut rates. To offset that hit, Elhedery will have to find a way to boost other fee-based businesses, like wealth management. For once, costs are a sideshow at HSBC.

HSBC's new CEO Georges Elhedery is planning to cut around $300 million of costs by targeting the bank's senior-management layer, the Financial Times reported on Oct. 10 citing people familiar with the matter.

Elhedery may combine the commercial banking unit with the global banking and markets business, the report said.

Surendra Rosha, who is co-head of Asia, could run a combined commercial banking and global banking division, while current head of markets Patrick George could run the rest of the enlarged division, according to the report.