HSBC Resorts to Layoffs to Improve Profits

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Weaker revenues and a bleak economic outlook are compelling global banks to intensify efforts to cut costs. And banks seem to have a unanimous agreement on the strategy to achieve this -- layoffs. HSBC (NYS: HBC) seems to be leading the pack with mass job cuts and divestitures.

The game plan
The European banking giant plans to cut 30,000 jobs worldwide and sell off 195 retail banking branches in the U.S. -- almost half of the total retail branches it has in the country. This is part of HSBC's strategy to improve profits by reducing costs $2.5 billion to $3.5 billion over the next two years. The bank has already slashed about 5,000 positions through the year and is hinting at further job cuts.

Restructuring of operations in countries such as the U.S, the U.K., and other European countries is part of HSBC's plan to focus more on the Asian market at the moment. The bank anticipates growth in the U.S. and Europe to remain slothful, owing to the debt chaos and government cuts in spending. HSBC is selling 195 retail banking branches in the U.S to First Niagara Bank (NAS: FNFG) for around $1 billion.

Trends across the industry
In fact, this mass culling seems to be a general trend across the industry. After reporting a 33% dip in profits, Barclays (NYS: BCS) recently announced it would cut 3,000 jobs this year. Lloyds Banking Group (NYS: LYG) also decided to cut 15,000 jobs to reduce costs by $2.4 billion and sell its overseas branches. American banks such as Goldman Sachs (NYS: GS) and Bank of America (NYS: BAC) are planning to follow suit.

The Foolish bottom line
Plagued by the sluggish economy, weak loan demand, and European budget cuts, HSBC is desperately cutting costs. It has also decided to sell off its credit card unit as part of its cost-cutting initiative.

While divesting its noncore businesses to streamline its operations looks like a plausible move, cutting such a significant number of jobs appears short-sighted. The bank is looking to faster-growing markets to cope with weaker revenue. This might help in improving numbers in the short run, but it cannot rely on layoffs forever.

At the time this article was published Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article.The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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