HSBC's Next CEO Plans to Trim Middle Management to Save Costs

HSBC Holdings plc's HSBC incoming chief executive officer, Georges Elhedery, is considering a significant organizational transformation intended to streamline the company's operations, according to a Bloomberg report. After taking over as the new CEO on Sept. 2, Elhedery will mull plans that could include cutting layers of middle management and reducing the number of country heads across HSBC's global footprint.

These anticipated job cuts align with HSBC's ongoing focus on improving efficiency and cost control amid evolving economic challenges.

This approach is similar to the approach followed by other banks, including Barclays PLC BCS and Standard Chartered PLC SCBFF, which have trimmed middle management as part of larger cost-cutting programs.

In May 2024, BCS commenced job cuts across investment banking (IB) and research division, per people familiar with the matter. This move aligns with BCS' £2 billion cost-cutting program to boost profitability. In June 2023, SCBFF started laying off employees in Singapore, Hong Kong and London to reduce costs by more than $1 billion between 2022 and 2024.

As the Federal Reserve begins to cut interest rates starting next month, banks might face a reduction in profit margins. Thus, to optimize profit, HSBC is taking cost-reduction measures like these. According to some sources, the bank has slowed down its hiring process and is not rushing to replace staff who have left or resigned in recent months.

HSBC's Streamlining Efforts

HSBC has been actively restructuring its operations to further improve operating efficiency.  HSBC's restructuring efforts have already resulted in the bank exiting non-core regions, such as France and Canada, as well as reducing its presence in South Africa. These actions are consistent with the bank's shift toward its core growth regions in Asia, where it sees a higher potential for long-term returns.

In 2020, the company announced its transformation plan to reshape underperforming businesses, simplify complex organizations and reduce costs. The company realized gross savings of $5.6 billion, with a cost to achieve a spend of $6.5 billion by 2022-end. It expects to achieve additional cost savings this year, driven by the actions undertaken in 2023. The same year, under the leadership of current CEO Noel Paul Quinn, HSBC initiated a significant restructuring plan that included cutting down 35,000 jobs to adapt to the challenging economic conditions brought on by the COVID-19 pandemic.

In April 2024, HSBC laid off about a dozen bankers from its investment banking division in Asia as part of its broader effort to optimize operations and focus resources on more profitable areas.

Elhedery's plans to further reduce middle management layers might indicate a continuation of the previous strategy, which aligns the bank's operational structure with its global focus.

Our View on HSBC's Plans to Trim Middle Management

The idea of cutting back on middle management is indicative of a broader trend in the banking sector amid economic pressure. By reducing middle management, HSBC can reduce costs, expedite decision-making and offer lower-level staff more authority.

While cutting middle management can lead to immediate cost savings, it often opens room for significant challenges. Removing the middle management layer without proper restructuring could lead to creating leadership gaps and reducing employee engagement.

Considering this, HSBC must strike a cautious balance between reducing costs and preserving the leadership and operational strength required for long-term growth.

In the past six months, shares of HSBC on the NYSE have gained 12.8%, underperforming the industry's growth of 13.7%.

Image Source: Zacks Investment Research

At present, HSBC carries a Zacks Rank #3 (Hold).

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