Just days after JPMorgan revealed it would fire another 5,000 by the end of the year in a “scalpel” headcount reduction, overnight the world’s favorite drug money laundering bank HSBC unleashed the “machete” and announced it would cut almost 50,000 workers, or one in five bankers, a move which would shrink the investment bank division by one-third. The reason: the same why US corporations are laying off tens of thousands so they can fund record stock buybacks and enrich their shareholders – to boost profits so that more money can be channeled in the form of dividends.
According to Reuters, the bank’s second big overhaul since the financial crisis “will speed up a cull of unprofitable units and countries by cutting almost 50,000 jobs – half of them from selling businesses in Brazil and Turkey.” Gulliver warned that its decision to sell its businesses in Turkey and Brazil, where it had failed to gain scale, showed that HSBC “had no sacred cows”.Â
Considering these countries are either deeply in recession or on the cusp, the massively layoffs will likely have a profound macro impact on the regional economies.
It will cut its assets by a quarter, or $290 billion on a risk adjusted basis (RWA) by 2017, and slice $140 billion from its investment bank which will subsequently make up less than a third of HSBC’s balance sheet from 40 percent now.
But while the pink slips galore, shareholders will be happy:
Gulliver also pledged higher payouts for investors. “I believe that we are in the foothills of another prolonged period of dividend growth for the firm,” he said. He noted that the bank’s dividend had grown from 17 years from 1991 to 2008.
Still, some are getting skeptical that one can grow cash flows by massive attrition:
But investors were cautious about how HSBC would translate job cuts into meaningful savings given the higher cost of doing business in a tougher post-crisis business environment marked by new rules on risk and compliance.
“Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex,” said James Antos, analyst at Mizuho Securities Asia.
