HSBC Holdings Plc (HSBA), Europe’s largest bank, doubled its target for generating additional revenue from greater cooperation among its four businesses to $2 billion.
The lender, based in London, is also on schedule to meet the top end of its target for eliminating as much as $3.5 billion of costs by the end of next year, according to a filing to the Hong Kong stock exchange today.
Chief Executive Officer Stuart Gulliver, who took over in January 2011, pledged in May last year to cut costs as a percentage of revenue and increase return on equity, a measure of profitability, to at least 12 percent by retreating from less profitable markets. He’s announced the sale of 28 businesses since the start of last year.
“Revenue growth is a key issue HSBC (5) needs to address, and revenue growth tends to be harder to achieve than cost savings, so the market tends to be a bit more skeptical on those than cost savings and they take longer to get priced in,” said Gary Greenwood, an analyst at Shore Capital in Liverpool, England.
HSBC fell 0.3 percent to 532.6 pence in London trading at 8:15 a.m., giving it a market value of 96.7 billion pounds ($153.7 billion).
“The revenue synergy and the revenue target are encouraging as it suggests that HSBC’s cost-efficiency effort is not just focusing on reducing costs,” Sandy Mehta, CEO of Hong Kong-based Value Investment Principals Ltd., said by telephone today. “That’s a fine balance.”
The bank has increased its estimate for potential additional revenue from integrating its four global businesses in the “short to medium term” by $1 billion, Gulliver said in the statement. HSBC said a year ago it would encourage greater cooperation among its investment and commercial banking units to create $1 billion in extra revenue.
The bank will exit four markets in Latin America and change its model in another four, concentrating on the “priority markets” of Argentina, Brazil and Mexico.
HSBC said a year ago it would target a return on equity of 12 percent to 15 percent. That compares with 11 percent in 2011. The bank also said it would seek to reduce costs to a range of 48 percent to 52 percent of revenue. That measure stood at 56 percent at the end of March.
“We are reaffirming our targets,” Gulliver, 53, said in the filing. “We will continue to run off our legacy assets, including the U.S. consumer and mortgage lending book.”
Gulliver has announced about $6 billion of asset sales, led by its disposal of its U.S. credit card unit to Capital One Financial Corp. (COF) for a premium of $2.5 billion. It agreed in August to sell its upstate New York branch network to First Niagara Financial Group Inc. (FNFG) for about $1 billion, Bloomberg reported.
