LONDON — HSBC Holdings PLC will halt its push for new clients of HSBC Premier, its flagship banking service aimed at wealthy international clients, as it tackles company-wide cost overruns the bank flagged in its 2010 annual results last week.
Putting the brakes on Premier, an account brand that provides "preferential" banking services to wealthy customers, is an element of the strategic changes that will made by new Chief Executive Officer Stuart Gulliver, who took the helm late last year.
The Premier accounts offers perks like emergency travel assistance, priority telephone banking and free money transfers between international accounts.
As of the end of 2010, Premier had netted 4.4 million new accounts. When the Premier marketing push was touted in early 2008, under former CEO Michael Geoghegan, the goal was to expand until 2012 and capture a total of 6 million new accounts.
Mr. Gulliver said in an interview last week that 4.4 million new accounts "gives us critical mass" and that the bank would not push for the 6 million target. He cited staff expenses in some areas of the Premier business as a factor in the higher costs the bank reported in 2010.
The Premier move illustrates the fine line banks must walk as they seek deposits — considered the gold standard for bank funding — and try to keep expenses in line.
The bank now wants to make its existing clients more profitable by pitching more of HBSC's wealth-management services to Premier customers, says a person familiar with the plans. Mr. Gulliver underscored this last fall when he created a new role of CEO for retail and wealth management, linking the businesses more closely.
A bank spokesman declined to comment on the pullback or how much money could be saved, but said that "our focus is on serving existing customers and making existing relationships more profitable."
He said more detail on Mr. Gulliver's plans will be discussed at an HSBC strategy day for investors in May.
The bank doesn't break out the cost-income ratio for the Premier service, which is part of HSBC's retail-banking operation. In 2010, in Europe and the U.K, the retail bank's cost-income ratio — a key measure of efficiency — was 67%, which is 10 to 20 percentage points higher than its U.K. peers, according to a recent report by Citigroup analyst Ronit Ghose.
In Latin America, where the bank moved away from riskier personal lending into Premier services targeted at the affluent, the cost-income ratio was at 66%, almost 20 percentage points higher than that of its peers, according to Mr. Ghose and other Citigroup analysts, causing them to conclude that "restructuring is needed."
The bank has rolled out the Premier service in 45 countries, focusing on new wealth and developing markets. It attracted nearly a million new customers — a record — in 2010.
Targeting affluent, international clients, its advertisements are ubiquitous in airports and on public transportation in the world's largest cities. TV ads are aired world-wide; one shows glamorous people losing their wallets and getting replacement cards delivered promptly, thanks to the Premier service.
HSBC disappointed investors last week when it revealed that the so-called cost-efficiency ratio for the bank overall rose from 52% to 55% during 2010. The increase was tied to issues such as the expansion of HSBC's investment bank and the U.K's tax on bonuses, as well as to retail-banking costs. It was a figure Mr. Gulliver called "unacceptable."
"The focus has to be with my team on getting the costs reengineered rather than assuming we're going to get a revenue lift," he said.
