As part of this overhaul,Stuart Gulliver who was at the time the newly appointed CEO of HSBC unveiled a three-year plan in 2011 toslash costs, exit non-core markets and simplify the business.
Andall seemed to be going to plan until last year, when the bank hit several speed bumps.
Initially, when it set out on its three-year plan during 2011, HSBC was looking to shave around 10% off its total cost base. Costs as aproportion of revenues were projected to fall from 55% to 48% over three years. Additionally, the bank was targeting a return on equity ratio a key measure of banking profitability of 12% to 15%.
Unfortunately, three years on and HSBC has failed to meet these key targets.Return on equity fell from 9.2% in 2013 to 7.3% in 2014, despite lower bad debt charges, with a $2.2bn increase in operating costs the key driver.
For 2014, the groups cost income ratio leaped above 60% and profits at the reported level dropped by 17%. Fines, settlements and customer redress costs all ate away at the banks net income.
Another three years
HSBC has failed to accomplish what it set out to do three years ago and now the bank is facing the prospect of yet another three years spent restructuring.
In some regions around the world, namely Europe, HSBCs cost income ratio stands above 80%. Hong Kong is the only region in which HSBCs cost income isbelow 50%.
So, management are now looking to cut costs further in some regions. At the same time, the bank is targeting a tier one capital ratio financial cushion of 12% to 13%, up from the current level of around 11%. This means that the bank will have to reduce the size of its loan book, or curtail lending growth, to reduce leverage, which is likely to slow overall revenue growth.
But after cutting some50,000 jobs and exiting 77 businesses in four years, HSBC is going to have to take drastic action if it wants to cut costs further.
As a result, some analysts now believe that HSBC will embark on yet another three year plan in which the company will set out to cut costs further, exit more markets and restructure its remaining businesses.
There is also some speculation that HSBC will consider breaking itself up, separating its European and Asian businesses. Although the costs of performing a split like this may far outweigh the benefits.
The bottom line
So overall, after spending the last three years cutting costs it looks as if HSBC is going to have to embark on yet another three year plan.
Another three years of sluggish growth and deep cost cutting is not going to ignite HSBCs share price or earnings growth. With that in mind, if youre looking for growth, there are better deals elsewhere.
Here at the Motley Fool we love championing the markets most exciting growth stocks. We also love CEOs and investors who go against the grain of the City institutions and fund managers.
To that end, our team of top analysts has put together thisFREEreport,”3 Hidden Factors Behind This Daring E-commerce Play“.
We believe the company,which is led by a maverick CEO that always thinks outside the box, could double sales over the next few years.
This issomethingyou do not want to miss and we’re offering you the chance to find out more for free right now — justclick here.
Do NOT buy these 3 stocks
Theres lots of opportunity out there in todays market but theres also PLENTY of danger.
In anticipation of Champion Shares PROs brief opening to new members next week, the analyst team behind the Motley Fools most exclusive service has agreed to share 3 stocks they believe YOU would do best to avoid.
PRO research is rarely made available to the general public. To find out the names of these “don’t buy” companies — and to claim your 100% FREE copy of Steer Clear Stocks right away — simply click here.