As part of its plan to reduce cost by retrenching 30,000 employees by the end of 2013, HSBC Holdings Plc. has announced job cuts in the UK. The company stated that there would be a reduction of about 3,167 jobs, out of which nearly 950 employees would be redeployed in other departments. This implies an effective job cut for over 2,200 employees.
Jobs to be Impacted
The employees in HSBC’s retail bank, mainly senior and middle level managers, will bear the brunt of this announcement. Additionally, quite a few investment advisors will be axed. However, none of HSBC’s 1,250-branch network operations will be affected by this action.
Reasons for the Downsizing
Though HSBC recorded a profit of $3.5 billion (up nearly 45% from the prior year) from its UK operations last year, it is retrenching employees. The main reason behind the reduction of employees is the company’s strategy to revamp its operations for stabilizing the capital levels and improve efficiency.
In May 2011, HSBC’s CEO announced the plans to bring down the operating expenses by $3.5 million by the end of 2013 through restructuring and contraction of its global business.
HSBC has been evaluating all of its global businesses while trying to focus only on profitable and core operations. By 2013, the company anticipates pushing down its cost efficiency ratio to 52% from 57.2% in 2011.
New banking regulations are also behind the reduction in headcount. Later in June this year, UK bank regulators are expected to provide details regarding the new regulation that will lead to the separation of retail banking activities from other investment banking operations. This new regulation will likely lead to stringent rules to be followed while selling risky financial products to the customers.
This new regulation may result in less number of clients seeking financial advice from the banks. Hence, HSBC undertook proper review of its operations. Additionally, to remove multiple layers of management, it decided on reducing its personnel in UK.
Similar Moves by HSBC Before
Over the last year, HSBC has slashed about 7,000 jobs across the globe as part of its restructuring effort. In the first part of restructuring, the company slashed its employees in US, Brazil, Hong Kong, Mexico and Canada.
The company has also been divesting and closing its businesses (mostly unprofitable and non-core) in many countries, which has led to retrenchment of employees. However, at the same time, it has been recruiting in faster growing markets to improve market share and financials.
Similar Actions by Other Banks
The job-cut scene has been witnessed in other banks as well. Since 2008, about 80,000 banking jobs have been slashed in the UK. The main banks that have trimmed down their staff include The Royal Bank of Scotland Group Plc (RBS - Free Report) , Lloyds Banking Group Plc (LYG - Free Report) and Barclays Plc (BCS - Free Report) .
The latest move by HSBC to shrink its workforce will definitely go a long way, helping it implement its long-term strategy of improving profitability. However, this would add to the ever-increasing unemployment rate in the UK, which has been facing a significant economic downturn.
Currently, HSBC retains a Zacks #2 Rank, which translates to a short-term Buy rating.