Stuart Gulliver says markets are rewarding coalition austerity by keeping interest rates low and sterling strong
Stuart Gulliver, chief executive of HBSC, gave his backing to the government’s austerity measures on Tuesday even as France’s new Socialist president pledged to step back from such tough budget regimes.
The boss of Britain’s biggest bank also admitted that it was impossible to know if Greece would leave the eurozone after the weekend elections made it difficult for a government to be formed in Athens.
As the bank reported a slide in pre-tax profits to $4.3bn (£2.7bn) from $4.9bn, Gulliver said that the markets were rewarding the coalition’s austerity policies by keeping interest rates low and sterling strong.
“The UK should continue with its austerity policies, as tough as it is,” he said.
The bank has a large business in France after buying CCF in 2000. After the French president-elect, François Hollande, pledged to step back from austerity in an effort to bolster growth in France, Gulliver said “it remains to be seen what the departure from austerity might be.” Hollande’s election on Sunday had been expected, Gulliver said, pointing to the muted market reaction on Monday when shares traded in France ended the day higher.
But with on-going political uncertainty in Greece, where a messy election result has left the parties unable to form a government, there is increasing speculation that the debt-laden country will leave the eurozone. Economists at Citigroup have pushed the chances of a Greek exit up from 50% to 75%. Gulliver’s verdict was that the eurozone as a whole would survive.
“I don’t think the eurozone will break up – but it’s impossible to say whether or not Greece will stay in,” he said.
The Financial Services Authority has already told banks to have contingency plans for a eurozone member leaving, Gulliver said.
The bank has cut 14,000 jobs since this time last year as part of Gulliver’s strategy to improve the return on equity – a measure closely watched by shareholders – from 6.4% to 12% by the end of 2013. Some 30,000 jobs – almost one-in-10 – will have been lost by the time the three-year programme is completed and the bank has now achieved $2bn in annual savings through the programme, which has also involved pulling out of 30 business.
In the UK, the bank has been forced to increase its provision for claims against payment protection insurance – as Lloyds banking group, Barclays and Royal Bank of Scotland have already done – because of a rise in claims. The total provision is now £750m after taking a £290m in the first quarter and Gulliver said there was administrative hassle in dealing with claims management companies. He described the ability of these companies to make claims against banks even for customers who did not have PPI polices as a “zero-cost option” and suggested the claims management companies should be forced to cover some of the cost of spurious claims.
Gulliver, who is holding a strategy day next week, said that he was making good progress in implementing our strategy.
The bank reported a loss in first quarter of $997m compared with a profit of $652m a year ago but this was largely the result of a change in the value of the bank’s own debt. If the $2.6bn change in the value of the bank’s debt is excluded from results, the group profits were up 25% at $6.8bn.