HSBC says losing money in China, India retail banking

Friday, 20 May 2011 01:10 - - {{hitsCtrl.values.hits}}

Reuters) - HSBC Holdings Plc, Europe’s biggest bank, will find most of the $3.5 billion it wants to save by trimming staff and cutting less profitable operations outside of Asia, its chief executive said on Thursday.

HSBC Chief Executive Stuart Gulliver also said the lender’s retail banking operations in China and India were still making a loss, but it would continue to run its business there because it needs a substantial yuan and rupee deposit base.

“Asia is not the problem,” Gulliver told an informal shareholders’ meeting in Hong Kong. “There are some parts of the world that need sorting out, and it’s not Asia.”

It is still looking to grow the number of employees it has in the region, while looking to cut costs in other non-staff expenses, Gulliver said.

The lender said earlier this month that it intended to cut back on its retail banking business and might sell its U.S. credit card arm in a move that could cut $3.5 billion in costs and revive flagging profitability. Many banks such as HSBC and Standard Chartered have seen their staff costs rise sharply in Asia, partly because of intense competition for talent in the fast-growing region.

HSBC is also expecting an interest rate hike in the United States by the end of June next year, a move it said would have a positive pact on its net interest margin.

HSBC, which is currently headquartered in London, will look at the issue of where it is domiciled by the end of this year, which it does once every three years, Chairman Douglas Flint said.

Hong Kong is among the places that may be suitable for a bank the size of HSBC, he added.

“We need to be in a location where we have a substantial presence, where the economy itself is substantial,” Flint said. “We probably will come down to no more than three or four or five cities that will qualify, and Hong Kong is one of those cities that qualify.”

Political rhetoric in the UK has become more aggressive towards banks, as public anger at the cost of the taxpayer bailout of lenders RBS and Lloyds and the payment of generous bonuses to bankers has risen.

A British tax on bank assets to be introduced this year would also cost HSBC about $600 million based on its balance sheet at the end of last year.

In Hong Kong, HSBC will be looking to become a clearing bank for the offshore yuan, where deposits denominated in the Chinese currency have surged following a liberalisation of its use last year.

Currently, only Bank of China (Hong Kong) is allowed to effect yuan settlements in the territory.

However, there are no signs that China’s central bank will increase the number of settlement banks soon, said Peter Wong, HSBC’s Asia head.

“We really hope to be one of the RMB clearing banks in Hong Kong, Wong said. “If we can become one of the clearing banks in Hong Kong, it will be good for the market, because there will then be competition.”