Management at HSBC (HSBA) could be forgiven for expecting a more positive reception from the markets to its strategy update, given the extent of its planned belt-tightening. The bank has pledged close to $5bn (£3.3bn) in annual cost-savings by 2017, partly achieved by losing as many as 50,000 jobs.
The market reaction could be understood as a lack of surprise, given most of the principles of the strategy shift were already familiar to followers of the bank. To summarise: cutting jobs and branches, centralising operations, reducing the investment bank and unprofitable overseas operations - Brazil and Turkey - to invest in growth markets such as Asia. The weakness in HSBC's shares, following this mass communication effort, could reflect either the fact that there was no silver bullet produced, or that cutting jobs did not do much good last time it was tried, following the arrival of chief executive Stuart Gulliver in January 2011. Now Mr Gulliver has a fresh 10-point plan for improving the bank's fortunes, and he needs one. Since he took up his post, HSBC's shares have fallen 7 per cent against a 12 per cent rise in the FTSE 100.
Banks are struggling to make a decent return in a low-rate, litigation-heavy environment. HSBC's return on equity (RoE) declined from 9.5 per cent in 2010 to 7.3 per cent in 2014. Just short of 3 percentage points were wiped off this measure by regulatory, compliance and legal charges, while a further 2 percentage points went the way of increased capital requirements. HSBC hopes to bounce back to a RoE of more than 10 per cent in 2017. This is both a modest and a demanding target. Modest compared with the 12-15 per cent RoE target set back in 2011, which demonstrates how far the business environment, and the regulatory demand for capital, has changed. Demanding in that it will require the turnaround of its Mexico and US business, and to push on in Asia - not to mention avoiding any further unexpected misconduct censure.
Across the pond, the bank needs to grow its revenue by adding clients and building links between its commercial and investment banking businesses, and to leverage the links between Canada, the US and Mexico through the North American Free Trade Agreement.
In Asia, HSBC is particularly targeting the Pearl River Delta region, which surrounds its birthplace of Hong Kong. The company argues that this area could become the world's largest city cluster by banking revenue over the next 10 years. Whether HSBC will achieve the required growth here is another matter. Asia has proved a good hunting ground for companies such as Prudential (PRU), which has benefited hugely from its bancassurance partnership with Standard Chartered (STAN), but the latter has been restrained by regulatory challenges and weaker credit quality in its Singapore, Indonesia and Malaysia operations. It is perhaps unsurprising then that HSBC is 'pivoting' towards asset management and insurance in this market, where there are rich pickings - but also firm competition from companies to benefit from the rise of the middle class.
More tangibly, the bank will also reduce its risk-weighted assets RWA) by at least a quarter - or around $290bn - largely by selling down its investment bank's legacy credit and long-dated rates book, reducing its capital financing activities and redeploying capital away from Turkey and Brazil.
The strategy points of Mr Gulliver's 10 that will gain the most attention are the setting up of a UK ring-fenced retail bank, headquartered in Birmingham - potentially under a new, or historic, brand - and the much-discussed potential relocation of its holding company. A decision on the latter is expected by the end of the calendar year.
