HSBC 2011 Annual Report Download - page 32

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance
30
restructuring costs, provisions relating to customer
redress programmes in the UK, including a charge in
respect of the possible mis-selling of Payment
Protection Insurance (‘PPI’) in previous years, the
UK bank levy and a new provision for US mortgage
foreclosure and servicing costs. These were partially
offset by a credit resulting from a change in the
inflation measure used to calculate the defined
benefit obligation in the UK for deferred pensions
and the non-recurrence of the 2010 payroll and bonus
taxes in the UK and France.
Salaries and wages rose, primarily driven by
wage inflation in Rest of Asia-Pacific and Hong
Kong and union-agreed salary increases in Latin
America.
The growth in business volumes, primarily in
Hong Kong, Rest of Asia-Pacific and Latin America,
was supported by a small rise in average staff
numbers (expressed as FTEs) which grew marginally
in 2011. Staff costs also rose due to higher
amortisation charges for previous years’ restricted
and performance share awards and an acceleration in
the expense recognition for deferred bonus awards of
US$163m, in line with regulatory and best practice
guidance (see page 95). Otherwise, performance-
related costs were lower than in 2010, primarily in
GB&M where net operating income declined.
During the year, we incurred US$1.1bn of
restructuring costs including US$542m which were
staff related and US$325m of impairment of certain
software projects now deferred or cancelled.
During 2011, we began a Group-wide review of
our organisational effectiveness. We achieved
US$0.9bn of sustainable savings in 2011,
approximately one third of our objective of
US$2.5bn to US$3.5bn over three years. We started
implementing consistent business models in RBWM
and CMB and undertook a detailed review of
our head offices. In addition, we began the re-
engineering of our global functions, we commenced
the streamlining of our IT function including the
consolidation of some data centres and other
services, and we re-engineered a number of
customer-facing and back-office processes leading to
a more efficient use of our corporate real estate.
This resulted in a net reduction of staff numbers
of more than 7,600 during the second half of 2011
despite continuing to recruit selectively in our target
growth areas.
The savings achieved by delivering on these
programmes enabled the funding of investment in
strategic initiatives, including the development of
Prime Services and equity market capabilities and
the expansion of the Rates and Foreign Exchange
e-commerce platforms in Europe, and the recruitment
of additional front office staff in selected markets.
Costs increased due to a rise in compliance costs
in GB&M and litigation expenses in RBWM, both
predominantly in the US. However, marketing costs
fell in North America and Latin America as
discretionary costs were tightly controlled.
Cost efficiency ratios4
2011
%
2010
%
2009
%
HSBC ......................................................................................................................... 57.5 55.2 52.0
Geographical regions
Europe ........................................................................................................................ 70.4 67.9 59.4
Hong Kong ................................................................................................................. 44.5 43.4 41.7
Rest of Asia-Pacific .................................................................................................... 54.2 55.7 55.6
Middle East and North Africa .................................................................................... 44.5 44.7 38.6
North America ............................................................................................................ 55.7 48.8 51.5
Latin America ............................................................................................................. 63.3 65.7 59.6
Global businesses
Retail Banking and Wealth Management17 ................................................................ 63.2 58.1 52.3
Commercial Banking ................................................................................................. 46.3 49.4 46.4
Global Banking and Markets17 ................................................................................... 57.0 48.8 37.5
Global Private Banking .............................................................................................. 68.8 65.8 60.5
For footnote, see page 95.