HSBC speeds up exit from emerging markets

HSBC, which for years branded itself the "world's local bank", is accelerating a plan to break from that business model and retreat from key emerging markets, in a renewed effort to become "simpler and smaller".

Europe's biggest bank by market capitalisation spent two decades acquiring a strategic presence in more than 80 countries but has been forced on the defensive after a string of scandals and its lowest annual profit in five years.

Its new strategic plan will lead to a withdrawal from retail banking in Brazil and Turkey, followed by other underperforming operations, said people close to the bank. Parts of its investment banking arm - one of its core businesses - will also be cut.

It represents a deeper and swifter retrenchment than the three-year strategy outlined by chief executive Stuart Gulliver after he took over in 2011.

HSBC's top executives have been stung by criticism from UK parliamentary committees over a scandal at its Swiss private bank, which helped tens of thousands of rich clients dodge the taxman between 2005 and 2007.

Mr Gulliver has also come under personal attack from politicians over his pay and tax arrangements, but remains popular with investors. He will seek to cement that support at an investor briefing on June 6, outlining details of the new plan.

HSBC saw out the financial crisis more successfully than most of its rivals but its difficulties over the past three years - stemming mainly from misdeeds in the pre-crisis years - have prompted claims that it is too big to manage.

It has been in the crosshairs of regulators since 2012 when it was fined $1.9bn and put on probation for five years by the US Department of Justice for laundering money from Mexican drug cartels and violating sanctions.

Shareholders appear likely to welcome the new strategy from Mr Gulliver, who has responded to the Swiss scandal by emphasising his record of exiting more than 70 operations and pulling out of more than 10 countries.

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One top-20 shareholder said: "Do they still need to be in every retail banking market? Do they really need to battle away as the number four bank in Brazil or in Turkey where they are even smaller? There are big questions."

Despite shedding 50,000 staff since Mr Gulliver took over, the group has been forced to abandon several core targets.

It dropped a pledge to cut its ratio of costs to income to between 48 and 52 per cent, through $3.5bn of cost cuts. At the last count, the ratio was more than 67 per cent, far higher than when Mr Gulliver took over, as compliance overheads pushed up costs and ultra-low interest rates undermined income.

The bank's pre-tax profits fell 17 per cent last year and it recently cut a return on equity target from 12-15 per cent to "greater than 10 per cent" in the next three to five years, mainly because of higher capital requirements.

While discussing the annual results with analysts, Mr Gulliver said its operations in Mexico, Brazil, the US and Turkey posed "the biggest problems" and would be put under review.

People familiar with Mr Gulliver's thinking said the bank was planning to withdraw from retail banking in Brazil and Turkey. One banker said HSBC had already started sounding out potential buyers for much of its lossmaking Turkish operation.

It has also weighed withdrawals from the US and Mexico but was likely to conclude that free trade links made it worthwhile to remain an all-service "universal bank" in those markets. In investment banking, as at peers, fixed-income operations in areas such as interest rate trading are slated for cuts.

Last year, its 300-branch operation in Turkey made a $64m loss on revenue of $791m. In Brazil, its biggest Latin American operation with 1,700 branches, the bank lost $247m on revenue of $4.8bn.

HSBC shares are up slightly so far this year, but they have underperformed the MSCI world bank index by more than a fifth since Mr Gulliver took over in January 2011.

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