Will HSBC Mexico be next to feel the axe?

2015-06-08

HSBC's Mexican operations could be the next to feel the impact of the bank's downsizing strategy in the region, with the lender due to announce at an investor event on Tuesday plans to cut between 10,000 and 20,000 jobs globally by the end of 2017.

Since the turn of the decade, HSBC has had a strategy to shed non-core assets around the world, offloading oper?ations in much of South and Central America, and downsizing in Chile while maintaining major banking operations in Mexico and Brazil.

But despite having good market share and strong brand recognition in Mexico, the bank's profitability in the country has been on the decline in the last two years, suggesting it could be one of the next units to feel the axe.

"If we check the return on equity [ROE] we can see that two years ago HSBC reported ROE of 9.4%, and in the last report published in March 2015, ROE was 1.5%, a fall of -790 basis points, so the value generated for the shareholders has been decreasing a lot," Carlos Ugalde, an analyst at Signum Research, told BNamericas.

"The problem is if the Latin American units are not profitable in the medium term, because since three or four years ago, HSCB has decided to cut employees if the unit doesn't generate the results they're expecting."

Globally, the cuts will likely come in retail banking as well as the group's investment banking business, reported the Financial Times, and do not factor in the potential sale of HSBC's operations in Brazil or Turkey.

BRAZIL SALE

In April, HSBC put its Brazilian business up for sale, subsequently attracting interest from local banks Bradesco and BTG Pactual, as well as Santander Brasil.

Upon completing the sale, HSBC would likely remain with just a representative branch in Brazil to execute trade finance and cash-management services for foreign multinationals, said FT.

"I'd be very surprised if they completely got out of Brazil. They need to have some presence there to serve big corporates," said Ronit Ghose, banking analyst at Citigroup, according to the paper.

In Brazil, HSBC is the seventh largest lender by total loans but has just a 1.9% market share.

SIGN OF THE TIMES

The HSBC announcement is due to come only a few weeks after investment bank JPMorgan said it will slash 5,000 jobs by 2016 as part of cost cutting measures, reflecting efforts by global banks to boost profitability amid new regulatory regimes in their home countries, Fitch analyst Franklin Santarelli told BNamericas.

"Their operations in Latin America remain largely more profitable than their headquarters, but some efficiency measures can also spillover to Latin American subsidiaries " said Santarelli.

"Banks in Latin America have also been working to improve their efficiency in times when more competition and the low interest rate environment are reducing spreads; it's an ongoing process, but also limited by the need to expand bank penetration in the region."