Emerging market wages to affect HSBC cost-cutting targets
Bank CEO warns of increasing wages in Asia, Latin America and the Middle East
By CFOWorld.co.uk | CFO UK | Published 10:16, 28 February 12
Increased wages in the emerging markets will make it difficult for HSBC to meet its 2012 cost cutting targets, its chief executive warned on Tuesday.
The banks' wages in Asia, Latin America and the Middle East increased by £630 million in 2012, chief executive Stuart Gulliver said.
HSBC has remained relatively unscathed by the eurozone crisis because of its strength in the emerging markets, with three-quarters of its business taking place outside Europe and North America. On Monday, it announced £14 billion of pretax profits.
"We remain comfortable with the (outlook in) emerging markets and are confident that GDP growth in emerging markets will be positive and China will have a soft landing," Gulliver said.
In contrast, the euro zone economy would flatline this year, with "marked recessions" in some southern countries, he added.
The world's most profitable banks in recent years have been Chinese groups ICBC, which made a 215 billion yuan (£21.5 billion) pretax profit in 2010, and China Construction Bank, which made 175 billion yuan (£17.5 billion).
HSBC's profit was boosted by a £2.4 billion accounting gain on the value of its debt. Stripping that out, underlying pretax profit fell 6 percent to £11.1 billion.
HSBC said it paid out £2.6 billion in bonuses, down 2 percent on 2010. Gulliver was paid £8 million last year - including a £2.2 million bonus - down from £8.4 million in 2010, when he ran HSBC's investment bank. Another banker, whom HSBC declined to name, netted £7 million, while 192 employees were paid over £1 million each, including 64 in the UK.
Gulliver said HSBC would continue to pay competitively, particularly in emerging markets, as the growth being delivered made the investment worthwhile.
"Wage price inflation and competition for staff is very high. We are not the only people to work out that the emerging markets have high GDP growth and there's a limited pool of talent," he said.
While HSBC remained on track to hit its return on equity target of 12 to 15 percent by the end of 2013, it would be a "challenge" to achieve its cost-to-income goal of 48 to 52 percent by then, Gulliver said, adding this was mainly due to a difficult macro-economic backdrop.
The cost-to-income ratio deteriorated to 61 percent in 2011 from 55.6 percent the year before for its underlying business.
Gulliver said HSBC would offset some of the pressure by redoubling its cost-cutting efforts elsewhere in the business and said it was confident of hitting the upper end of its £1.5-£2.2 billion annual cost-savings range.
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