Monthly Archives: July 2019
Chief Executive Stuart Gulliver has made it his mission to boost profits since taking the helm of Europe’s largest bank by assets in 2011 but his efforts have so far been foiled by high compliance costs, fines and low interest rates.
In the bank’s second big overhaul since the financial crisis, it will speed up a cull of unprofitable units and countries by cutting almost 50,000 jobs – half of them from selling businesses in Brazil and Turkey.
The bank also planned to increase its business in Asia, particularly in China.
HSBC will cut its assets by a quarter, or $290 billion on a risk adjusted basis (RWA), by 2017, and slice $140 billion from its investment bank, which will subsequently make up less than a third of HSBC’s balance sheet from 40 percent now.
Gulliver also pledged higher payouts for investors. “I believe that we are in the foothills of another prolonged period of dividend growth for the firm,” he said. The bank’s dividend had grown for 17 years from 1991 to 2008.
But investors were cautious about how HSBC would translate job cuts into meaningful savings given the higher cost of doing business in a tougher post-crisis business environment marked by new rules on risk and compliance.
“Slaughtering the staff is not necessarily the solution unless management makes the bank considerably less complex,” said James Antos, analyst at Mizuho Securities Asia.
HSBC shares closed down 0.94 percent, pressured also by disappointment after the bank cut its target for return on equity to greater than 10 percent by 2017, down from a previous target of 12-15 percent by 2016.
European rivals including Barclays (BARC.L), RBS (RBS.L), UBS (UBSG.VX) and Deutsche Bank (DBKGn.DE) have axed thousands of jobs, but many are facing fresh calls for more radical cuts in investment banking given tough operating conditions.
Some investors and analysts reckon HSBC should consider breaking up, on the grounds that extra compliance and regulatory costs outweigh the benefits of scale.
But Gulliver defended the bank’s global footprint and universal strategy.
“The answer isn’t the network should be broken up, the issue is there are four or five countries that are a major problem,” Gulliver told investors and analysts during a five-hour presentation. He cited Brazil, Turkey, Mexico, the United States and Britain as countries where weak performance or high conduct costs and fines had destroyed value.
He estimated the bank achieved $34 billion of revenue benefits from its size and diversity, including $22 billion of client revenue stemming from its international network.
No sacred cows
Jobs will be cut by introducing more automation and consolidating IT and back office operations, and the bank said it would close 12 percent of branches in its seven biggest markets. It has 5,800 branches globally.
Gulliver said about 7,000-8,000 job cuts would be in Britain, or one in six UK staff. The UK retail banking business would also be rebranded to meet new rules designed to ringfence customer deposits from riskier investment banking operations.
Gulliver said it was too early to say whether the group would keep the ring-fenced bank, which will be headquartered in the English city of Birmingham and account for about two thirds of UK revenues, or $11 billion.
The bank also set out 11 criteria for helping it decide whether to move its headquarters from London to Asia, likely Hong Kong, including factors such as economic growth, tax systems and long-term stability.
HSBC said it would complete the review of the possible move by the end of the year, and its strategy update clearly marked a greater shift to Asia, where it plans to redeploy assets cut in Europe and the Americas.
In particular, it plans to increase the size of its insurance business and its presence in China’s Pearl River Delta, a region in southern Guangdong province into which Beijing wants to integrate Hong Kong and which already represents a major economic hub.
“The cuts provide significant headroom for the group to
fund asset growth in Asia and absorb RWA inflation, whilst protecting its ability to pay a progressive dividend,” said Gurpreet Singh Sahi, analyst at Goldman Sachs.
The sale of businesses in Brazil and Turkey, where HSBC is the sixth and 12th biggest bank respectively, will cut $110 billion of risk-weighted assets. HSBC could fetch more than $4 billion for the pair.
The process of disposing of HSBC Bank Brasil Banco Múltiplo, as the unit is formally known, is well advanced. Brazil’s top three private-sector lenders have placed bids, a source with direct knowledge of the situation said on Tuesday. The sale could fetch between $3 billion and $4 billion, said the source, who requested anonymity since the talks remain private.
Itaú Unibanco Holding SA (ITUB4.SA), Bradesco (BBDC4.SA) and Santander Brasil (SANB4.SA) – the nation’s three largest non-government lenders in that order – had access to the sale’s preliminary documents and made bids, the source said.
Both Itaú and Santander Brasil placed offers below Bradesco’s, the source added.
Itaú, Santander Brasil and Bradesco all declined to comment.
Meanwhile, three banks – BNP Paribas (BNPP.PA), ING (ING.AS) and Bahrain’s Arab Banking Corp ABCB.BH – are in talks for the Turkish business, a source said.
Overall, HSBC will push through annual cost savings of up to $5 billion by 2017. It will cost up to $4.5 billion in the next three years to achieve the savings.
Robots to cut labour costs by 18 pct by 2025 – BCGAdidas targets prototype in-store production by 2016Nike promises to create 10,000 jobs for US production”Knitted” shoes need half the labour, 80 pct fewer partsFootwear industry employs millions in China, Vietnam, Brazil
HERZOGENAURACH, Germany, June 10 (Reuters) – German cobbler Adi Dassler revolutionised running when he started hammering spikes into track shoes almost a century ago.
Today most of the 258 million pairs of shoes produced each year by his firm Adidas are made in low-cost Asia.
That could soon change as cheaper, faster and more flexible robots mean manufacturing – including producing fiddly footwear – could be brought closer to consumers in high-wage countries like Germany, speeding up delivery and slashing freight costs in what some call a fourth industrial revolution.
Adidas is working with the German government, academics and robotics firms on new technologies it hopes will trigger a significant a shift in the footwear industry as the move led by its arch rival Nike to produce in Asia decades ago.
The project is part of a broader drive by Adidas to catch up with Nike, which has extended its lead as the world’s biggest sportswear firm in recent years with innovative products such as its “Flyknit” shoes made out of machine-knitted fibre.
“We will bring production back to where the main markets are,” Adidas Chief Executive Herbert Hainer said in March. “We will be the leader and the first mover there.”
Adidas hopes to be able to produce a custom-made running shoe from scratch in a store in Berlin by next year, using a stitching machine and a foamer to make the sole.
Nike, which has long faced criticism for using Asian sweat shops to produce its pricey footwear, is also investing heavily in new manufacturing methods. But it has not yet put a date on when it expects that to result in more US-based production.
Jobs at risk
Key to moving footwear manufacturing closer to Western markets are technologies which cut the need for workers to piece together shoes. A machine can now “knit” an upper like a sock, robots can already complete more of the final assembly of the shoe, while 3-D printing could soon allow the production of a customised sole.
That could threaten millions of jobs in the footwear industry in countries like China, Brazil and Vietnam, but potentially create new positions elsewhere, albeit for more highly skilled labourers working alongside robots.
Robots, now used mainly in auto production, could soon cut labour costs by 18 percent or more by 2025 in other sectors, the Boston Consulting Group (BCG) predicts.
The new technology is being closely guarded: photographers were not invited to an investor presentation at the Adidas innovation centre, where it demonstrated a robot that could stick its trademark three stripes to a running shoe.
Nike, for its part, tried to stop Adidas producing a knitted shoe that it said violated patents for the “Flyknit” technology it launched in 2012. However, a German court ultimately allowed Adidas to resume production of its “Primeknit” shoes.
Nike says it can make “Flyknit” shoes with half the labour input of a typical “cut-and-sew” shoe as it has 80 percent fewer components, also resulting in 70 percent less waste as it no longer needs to cut pieces from a pattern and discard the rest.
Nike co-founder Philip Knight shook up the sporting goods industry that Adidas has dominated until the 1970s after putting into practice his thesis paper arguing that sneakers from lower-cost Japan could compete with pricier German-made versions.
Today, Asia produces 87 percent of all footwear, with China by far the biggest manufacturer, followed by India, Brazil and Vietnam, according to APICCAPS, the association of Portuguese footwear manufacturers that compiles global industry figures.
Increasing speed to boost margins
Nike and Adidas each rely on more than 1 million workers in contract factories worldwide to make their shoes.
While the need for speed is one motivating factor, rising wage costs, particularly in China, are also driving the shift.
“That element is going up dramatically,” said Glenn Bennett, head of global operations for Adidas who leads the project aimed at getting products to shoppers faster than the six weeks needed for shipments to arrive from Asia.
Adidas is working with companies like automotive supplier Johnson Controls, robotics experts Manz and knitting machine maker Stoll on new processes as it targets prototype in-store manufacturing by next year.
Adidas says more local manufacturing should leave it with less surplus stock it has to discount, helping to lift its operating margin above 10 percent from 6.6 percent in 2014, still behind the 13 percent Nike recorded last year.
Nike, which saw sales in North America dampened earlier this year by delays to deliveries from Asia due to labour disruption at ports on the U.S. West Coast, is unlikely to allow its German rival to get much of a headstart on localised production.
During a visit by US President Barack Obama to Nike headquarters last month, the firm promised to create 10,000 jobs in the United States in the next decade by producing more in its home market if a trade deal with Asian countries is approved.
“We are putting a lot of money and a lot of resources against how our supply chain evolves to increase speed and make sure we deliver to consumers as quickly and innovatively as we can,” Trevor Edwards, Nike brand president, said in March.
Beyond knitting and 3-D printing, other innovations helping to speed up production include bonding and gluing technologies to fuse together fabrics as well as waterless dyeing which allows pigments to penetrate textiles more quickly.
Yves-Simon Gloy, an expert from the Institute for Textile Technology at Aachen University who is collaborating with Adidas and sees the dawning of a fourth industrial revolution due to the emergence of “cyber physical systems”, machines equipped with sensors, cameras and motors that can be adjusted using the Internet in real time.
But Bennett and Gloy do not expect these smart machines to completely usurp human workers.
“The breakthrough will probably happen in finishing the product close to the consumer,” said Bennett. “Not moving the whole of the operation”.
(Editing by Anna Willard)
Controversial businessman Alan Bond is being remembered by the Perth yacht club he put on the map, as a larger-than-life character.
Mr Bond died on Friday aged 77, having never regained consciousness after open heart surgery at Mount Hospital three days earlier to replace a valve and repair two others.
Royal Perth Yacht Club Commodore Barry Honey said Mr Bond’s contribution to sailing would be honoured at a meeting of members on Wednesday night.
Without the entrepreneur’s determination and perseverance, Australia would not have won the America’s Cup in 1983, ending the longest winning streak in sporting history, Mr Honey said.
“Alan’s been an important member of the club – I don’t think there’s any doubt in anyone’s mind,” he told AAP.
“Before 1983, there were a number of campaigns leading up to the Australia II challenge and he was involved in all of those, so it took a while for him to get there but it was quite a feat.
“He will be certainly missed by a number of members here, particularly those who were involved in the America’s Cup campaign and who remember him very fondly.”
Mr Honey said Mr Bond was easy to get along with and quite charming and had created an identity for the club that was known around the world.
“He’d left lasting legacies, notably the substantial rejuvenation of Fremantle ahead of hosting the America’s Cup in 1987 when the US brought the coveted trophy back home.
“The Cup win had contributed to Australia’s national identity, making the boxing kangaroo almost the sporting flag for Australia as a whole,” Mr Honey said.
While many will remember Mr Bond as a convicted corporate fraudster, he’d mainly be thought of at the club as a positive figure, Mr Honey said.
“I think he’s one of those colourful characters that we’ve had in our society. So far as the yacht club’s concerned, we’ll predominantly remember him for his contribution to sailing.”
Mr Bond’s funeral will be held at St Patrick’s Basilica in Fremantle on Friday morning.
The 408 for nine a rampant England amassed in 50 overs at Birmingham was their highest ODI total and set up their biggest ever margin of victory in the 50-over format, a 210-run rout.
Captain Eoin Morgan, who suffered a miserable time at the World Cup where England were eliminated in the group phase having played passive, old school cricket, described the display at Edgbaston as “close to perfect”.
Former skipper Michael Vaughan, who labelled England startled rabbits after the World Cup, said on Twitter: “Still can’t believe what we saw in Birmingham yesterday…Remarkable mindset turnaround from what we saw at the World Cup.”
Joe Root and Jos Buttler hit centuries, in 71 and 66 balls respectively, while Buttler and Adil Rashid put on 177 for the seventh wicket as England’s decision to release the shackles on their young guns paid handsome dividends.
Thrashed by New Zealand in February as the World Cup campaign petered out, England promised a change of approach and were as good as their word, blazing away with almost reckless abandon despite losing opener Jason Roy from the first ball of the match.
They responded with a blaze of aggressive strokeplay which included 14 sixes, two more than their ODI record set against South Africa in 2009.
“We have had an attacking mindset, but the execution hasn’t always been there,” said 28-year-old Morgan, who also managed a half century. “Attacking cricket comes naturally to the guys we have selected.
“We normally go into our shells, that’s just how we play cricket in England because the ball moves around.
“Slowly but surely we have to move to the other end of the spectrum and stop playing safe cricket. Today is a big step towards that.”
England’s next opportunity to display their new-found verve will be in the second match against New Zealand at the Oval on Friday.
(Reporting by Martyn Herman; editing by Justin Palmer)
Former BlackBerry co-chief executive Jim Balsillie says that Apple’s introduction of the iPhone and BlackBerry’s rushed attempt to match it was devastating for the once iconic company.
Balsillie said in his first public remarks since leaving the company in 2012 that he knew BlackBerry couldn’t compete after the iPhone’s introduction in 2007 and after BlackBerry’s buggy touchscreen device called the Storm had a “100 per cent return rate”.
He said at the Empire Club in Toronto that the result of rushing it out was devastating.
He said Verizon, their largest customer, sacked them over it.
Balsillie made the remarks in a question-and-answer session with Jacquie McNish and Sean Silcoff, the authors of the new book Losing the Signal. The Spectacular Rise and Fall of BlackBerry.
Pioneered in 1999, the BlackBerry changed the culture by allowing on-the-go business people to access email wirelessly.
Then Apple showed that phones could handle much more than email and phone calls.
“With Storm we tried to do too much. It was a touch display, it was a clickable display, it had new applications, and it was all done in an incredibly short period of time, and it blew up on us,” Balsillie said.
“That was the time I knew we couldn’t compete on high-end hardware.”
Balsillie said BlackBerry continued as the world’s fastest growing company for two years because of sales of low-end devices in emerging markets but said that’s when things shifted for the Canadian company.
He said wireless carrier AT&T and Apple caused a seismic shift when AT&T gave Apple carte blanche and unlimited bandwidth to develop services like fast and full internet browsing and video downloads. BlackBerry was slow to adapt.
“It was difficult. It was a real shock to the company,” Balsillie said.
He said with the iPhone and Google’s Android phones emerging he strongly believed BlackBerry needed to open up its popular BlackBerry messenger service to other smartphone platforms. He noted that people thought BlackBerry made much of its money on hardware but he said it really made money on services.
BlackBerry, however, didn’t allow BBM on other platforms until after he left the company and after messaging aps like WhatsApp became popular.
BlackBerry now holds a minuscule fraction of the US smartphone market after commanding a nearly 50 per cent share as recently as 2009.
Although BlackBerry was once Canada’s most valuable company, with a market value of $83 billion in June 2008, the stock has plummeted to less than $10 from more than $140 a share. That gives it a market value of about $5 billion.
The Waterloo, Ontario-based company is trying to stay relevant as it tries to transform into an enterprise security and software company. Balsillie said he wishes the current management the best of luck.
Asked what smartphone he now carries, Balsillie said he still uses a BlackBerry Bold.
“You’ll have to pry it out of my cold, dead hands,” he said.