HSBC cost conundrum intensifies investor bank scrutiny

CLIMBING prices at HSBC have added to rising investor considerations about how massive banks handle their bills, placing executives beneath stress to rapidly deal with spending.

Although banks have seen revenues balloon within the increased rate of interest setting of latest years, fast-rising prices are actually starting to pinch, consultants and shareholders stated.

Recent outcomes have proven lenders scuffling with wage payments, regulatory prices and accelerating funding plans.

HSBC on Wednesday (Feb 21) reported a 6 per cent hike in prices in 2023, blaming spending on levies within the United States and Britain. Europe’s greatest financial institution by property additionally forecast a 5 per cent rise in prices in 2024, after committing to take a position regardless of stubbornly excessive inflation.

A report final yr by consultants Oliver Wyman and funding financial institution Morgan Stanley highlighted the necessity for banks to keep away from one-size-fits-all cost-cutting methods, with a purpose to obtain financial savings with minimal impact on revenues.

HSBC’s 2023 pretax revenue jumped 78 per cent to US$30.3 billion, however missed consensus estimates resulting from an sudden US$3 billion writedown on its stake in China’s Bank of Communications.

And whereas a recent US$2 billion inventory buyback went some method to soften these blows, some fund managers expressed concern.

“Costs are clearly disappointing, with inflation and investment casting a shadow and posing a risk to earnings,” Hywel Franklin, head of European Equities at Mirabaud Asset Management instructed Reuters after the HSBC outcomes.

British financial institution Barclays on Tuesday set out financial savings and cost-income ratio (CIR) targets that additionally fell quick for some traders.

Barclays stated it hoped to shave round £2 billion (S$3.4 billion) off its prices over the subsequent three years, decreasing its CIR to “high-50s” by 2026, from 63 per cent at end-2023.

HSBC chief govt Noel Quinn stated his financial institution was navigating the price strains higher than the shock overspend implied, with its CIR for 2023 right down to 48 per cent final yr, from 64 per cent in 2022.

Asset gross sales had been additionally proving a helpful price administration software.

“We are actually selling a billion dollars worth of costs,” Quinn stated, pointing to gross sales of HSBC’s French retail and Canadian arms which had been accomplished in latest weeks.

“We continue to try and offset investment in the business for growth and efficiency reasons with savings elsewhere,” Quinn added on a media name.

Other European banks have additionally felt the squeeze. Credit Agricole this month reported a 15 per cent leap in year-on-year underlying working bills in its fourth quarter, greater than anticipated, and flagged an extra 8 per cent rise in prices for 2024.

Deutsche Bank stated on Feb 1 it might lower 3,500 roles because it tackles a 75 per cent CIR and a 6 per cent rise in 2023 non-interest bills.


The Oliver Wyman and Morgan Stanley report stated that international banks might redesign their workforce to make clear roles and align compensation, whereas company specialists ought to trim regional footprints to prioritise on recession-proof revenues.

As inflation continues to stress their returns, some traders and analysts stated financial institution executives wanted to train restraint on share buybacks and pay, pending additional progress on broader financial savings and in case of potential financial shocks.

“Buybacks artificially inflate earnings per share, potentially leading to unsustainable practices over quarterly periods,” Allen He, analysis director at FCLTGlobal, instructed Reuters, in feedback about firms generally.

Meanwhile, compensation is being seen as an more and more major factor of banks’ rising price bases.

A report on Feb 8 from shareholder advisory agency Glass Lewis stated it might “carefully review the strategic rationale for any rebalancing of bankers’ pay packages” in view of modifications to regulation that eliminated caps on bonuses.

Quinn noticed his complete pay double in 2023 to US$10.6 million from US$5.6 million the yr earlier than, as long-term incentives from his appointment in 2020 started to vest, boosting his variable pay.

HSBC’s bonus pool rose to US$3.8 billion from US$3.4 billion in 2022, reflecting improved efficiency, and it might launch a variable pay scheme for junior and center administration employees.

That contrasted with Barclays the place the bonus pool dipped 3 per cent in 2023 to £1.8 billion and CEO CS Venkatakrishnan noticed his complete pay fall from £5.2 million to £4.6 million.

The Glass Lewis report stated it might “generally expect increases in variable incentive opportunity to be accompanied by an appropriate reduction in fixed pay”, including that the primary financial institution to suggest substantial modifications could act as a litmus take a look at.

“If an overhaul of pay is well-supported by shareholders, the other banks’ interest may well be piqued,” it stated. REUTERS