(Bloomberg) -- The UK’s largest lenders are tightening their belts as central banks around the world start to cut borrowing costs, ending an era of high interest rates that fueled the profits of large, global banks such as HSBC Holdings Plc.
The Bank of England voted this week to cut rates for the first time since early 2020 and signaled further reductions ahead. And bond traders see economic data as cementing the case for three rate reductions this year by the Federal Reserve.
While that’ll be a relief to households stung by elevated borrowing costs, it’s bad news for UK lenders’ revenue, which has been buoyed by high rates in recent years. In response, many banks have already begun preparing for the shift, initiating cost-cutting measures to protect profits in coming quarters.
At Standard Chartered Plc, for example, employees now must fly economy for trips of five hours or less, while business class used to be the norm. Lloyds Banking Group Plc staffers have been told to avoid taxis when there are other means of traveling to meetings available. And HSBC, Europe’s largest bank, has asked employees to try to set up three meetings a day before booking work trips.
“The most important thing that we’ve said today is we are reconfirming our full-year target cost growth of 5%,” outgoing HSBC Chief Executive Officer Noel Quinn told Bloomberg Television after the bank announced its second-quarter results. “We’re absolutely committed to that, we will not deviate from that and we’re on track to deliver that at the half year. So that is the most important thing.”
HSBC, based in London, has clamped down on everything from business travel to new hiring, with even senior bankers being challenged over relatively small expenses.
‘Fundamental Hygiene’
Standard Chartered Chief Financial Officer Diego De Giorgi said that keeping a lid on relatively small expenses is “fundamental hygiene” in the business of cost control.
“Of course, a company needs to take care of those kinds of things,” he said in an interview. “One of the jobs of the CFO office is to manage the cost base.”
While forcing bankers to skimp on meal expenses and flights is important, De Giorgi said, it’s not the key to moving the dial on expenses. “They are important, as I say, hygiene cost measures, but they are not transformation agents,” he said.
Standard Chartered has put aside $1.5 billion over the next three years to spend on its “Fit for Growth” program that aims to bake in longer-term reductions in the company’s costs that will cap annual expenses at $12 billion in 2026, compared with a base of $11.1 billion last year.
The London-based bank has more than 200 individual programs in the works to achieve that target, ranging from policies designed to shave a couple of hundred thousand dollars off its costs to measures that are expected to save tens of millions of dollars.
Lloyds has reminded bankers in its corporate and institutional banking division to book business class only for flights lasting six hours or more. Chief Financial Officer William Chalmers told analysts on a conference call that “strong cost discipline” was vital as the London-based bank faces inflationary pressures and seeks to maintain the financial headroom needed for strategic investments.
Meanwhile, spending money to save money is one of the contradictions at the heart of some cost-saving programs. NatWest Group Plc CFO Katie Murray said this week that while operating costs this year would be comparable to 2023, there areas in which they would be higher due to efforts aimed at future savings. She pointing to higher severance, branch-closing and property-exit costs.
It was a similar story at Barclays Plc, where cost pressures are expected to lead to job cuts.
“Yes, there are some people impact in there, but it’s largely about property and infrastructure,” Anna Cross, group finance director, said on an earnings call with reporters. “Our plan here really is based on a cost reduction, not a headcount reduction.”
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