HSBC(LSE: HSBA) has been working hard to cut costs and improve margins over the past five years.
However, these actions have yielded little in the way of results. The banks costs are stillrising and return on equity, a key measure of bank profitability, remains below managements target.
HSBC has already sold more than 70 businesses since 2011 and 50,000 jobs have been axed, shaving around $5bn from the banks cost base. But even this drastic restructuring hasnt been enough.
Last month HSBC announced yet another round of job cuts, business disposals and a retreat from some non-core markets.
Its believed that the bank is planning to cut another 25,000 jobs over the next few years. Businesses in Brazil and Turkey are up for sale, and market chatter suggests that HSBC is planning to exit the UK by spinning off its UK retail bank.
All in all, HSBC is shrinking and shrinking rapidly.
HSBCs troubles can be traced to the banksmassive acquisition spree, which started during 1999 under the leadership ofchairman,Sir John Bond.
Between 1998 and 2003, HSBCs customer base jumped from 25m to 110m following acquisitions in the US, Europe, Latin America and China.
The largest acquisition during this period was the $15bn deal to buyHousehold International, the US consumer finance company. Unfortunately, not only did this deal turn out to be HSBCs largest acquisition but it also proved to be the banks biggest mistake.
Six years later, HSBC wrote down the value of Household Internationalto zero as the financial crisis took hold.
The next deal to turn bad was HSBCs 2002 deal to acquireMexican bank, Grupo Financiero Bital.Ten years later, during 2012, regulators published a report showing that Mexicandrug cartels had exploited HSBCs lax controls at the Mexican branch to launder at least $881m through HSBC. The fine from regulators totalled $1.9bn.
Finally, there are the problems HSBCsSwiss private bank has caused. Management recently had to apologize for the fact that its Swiss private bank has been encouraging tax evasion
These three scandals have destroyed HSBC reputation.
Once praised for its rigorous money laundering controls and international reach, HSBC is now consolidating its footprint, exiting markets where its reputation lies in tatters.
Further, HSBCs management seems to have accepted the fact that the bank is no longer the international behemoth it once was. Indeed, HSBCs size and global scale once convinced management that a return on equity of12% to 15% was possible.
Management has now reduced this target tomore than 10 percent a vague goal.
The beginning of the end
As HSBC embarks on yet another round of business closures and job cuts, its becoming clear that the bank is a shell of its former self. And as the group retreats to its core markets, notably China and Hong Kong, HSBC is set to shrink in size dramatically.
Overall, HSBCs best days now look to be behind it. The bank is only going to shrink in size over the next few years.
Clearly, if youre looking for growth, HSBC is not the answer.
A growth play
If it’s growth you’re looking for, our top analysts here at The Motley Fool have discovered a company that they believe could see its sales increase by300% to 500%over the next few years. Unlike HSBC, this company could be one of the most impressive growth stocks around.
Nevertheless, few have realised itspotential, and as a result, the company in question has been touted a one of themarket’s hidden gems.
To find out more download ourfree report today. The report will be delivered to your inbox immediately and there’s no further obligation.
This is somethingyou do not want to miss! The company could be a great substitute for HSBC in your portfolio.