A few months after being appointed as the interim CEO of HSBC Holdings plc (HSBC - Free Report) , Noel Quinn has initiated a new round of cost-cutting, per The Financial Times. According to people familiar with the matter, this will lead to a reduction of nearly 10,000 jobs, particularly in Europe and the higher-paid roles globally.
This move is part of the bank’s broader objective of reducing almost 4,000 jobs globally, accounting for nearly 2% of its total workforce.
HSBC has realized that to enhance operating efficiency amid challenging market conditions, it has to reduce costs substantially.
Over the past few years, HSBC has been trying to shift operations to the most profitable businesses and hence achieve operating efficiency through “Project Oak”.
The latest job cuts come amid increasing geopolitical tensions — including the US-China trade war and the uncertainty related to Brexit.
Apart from HSBC, other companies have also been reducing workforce to grapple with unfavorable market conditions. Deutsche Bank (DB - Free Report) is expected to cut 18,000 jobs, and close the equity sales and trading business. Nomura Holdings, Inc said that it would slash nearly 150 jobs this year while Citigroup (C - Free Report) planned to cut at least 100 jobs in its equities business.
Concurrent with the second-quarter 2019 earnings release, it was announced that John Flint stepped down as the CEO of HSBC. Flint remained CEO for nearly 1.5 years, after joining the company in 1989.
Thus, Quinn, the chief executive of global commercial banking, was asked to take on the responsibility as the interim CEO and join the board as an executive director.
Through Project Oak, Flint wanted to achieve his “positive jaws” target. He deliberately wanted to keep revenues growing at a faster rate than expenses.
But, last year, Flint was unable to achieve his positive jaws target as growth in revenues did not outpace rise in expenses. Nonetheless, while first-quarter 2019 witnessed expense rise of nearly 3.2% due to increase in the number of investments for business growth programs, the company was able to meet Flint’s target of positive jaws. Moreover, the second quarter witnessed a marginal decline in adjusted expenses on a year-over-year basis.
Now, as the interim CEO, Quinn is working with Ewen Stevenson, the chief financial officer of the company, to achieve his goal of reducing expenses.
Despite the job cuts, HSBC remains on track to strengthen performance, with special focus on building operations in Asia, including Hong Kong and China, to deliver high-single-digit revenue growth annually from the region.
Shares of the company have lost 13.8% over the past six months compared with an 8.5% decline of the industry.
Currently, HSBC carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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