LONDON (Reuters) - HSBC's (HSBA.L) investment bank could shed more than a fifth of its clients and plans to reduce its credit and interest rates businesses by $100 billion over the next two years in its bid to improve profitability.
Under a strategic shift announced on Tuesday, HSBC said it will reduce the assets at its investment bank by a third, or $140 billion, which will reduce the significance of the business to Europe's biggest bank.
HSBC said its investment bank, known as global banking and markets (GBM), will sell $40 billion of legacy credit positions, cut assets at its rates and markets division by $60 billion and reduce low returning loans by $40 billion, according to a presentation.
Up to $100 billion of the assets being cut are held in Europe, mostly in Britain and France, said Samir Assaf, chief executive of GBM.
GBM said it had shed 275 clients since 2011 and was in the process of getting rid of another 700, or more than 20 percent of its roughly 4,000 main client groups.
"We are working on clients that have low profitability or low return for capital use," Assaf told investors and analysts at the presentation, saying GBM was also deciding whether to keep another 250 clients.
The aim is to reduce the size of GBM, cap its costs and improve its profitability.
Banks are putting increasing focus on their top clients and trying to drop smaller and less profitable ones.
They are also focusing on product areas where they are in the top five, which for HSBC includes foreign exchange (FX) and debt capital markets (DCM) in all regions, rates trading in Asia and Europe as well as equities in Hong Kong and the Middle East.
Other European banks such as Deutsche Bank (DBKGn.DE), Barclays (BARC.L), UBS UBSG.VX, Credit Suisse CSGN.VX and RBS (RBS.L) are also shrinking and losing market share to U.S. rivals such as JPMorgan (JPM.N).
HSBC ranked 12th in investment banking revenues in the last two years and in the first quarter with 2 percent of industry fees, according to Thomson Reuters data. JPMorgan is the leading bank with a market share of about 7 percent.
GBM, which has 16,300 staff and includes other businesses such as balance sheet management and trade finance, made an $8.1 billion profit last year, or 36 percent of HSBC earnings.
HSBC wants to lift GBM's return on risk weighted assets to 2.6 percent in 2017 from 1.6 percent last year and plans to expand in some areas, including FX and DCM in all regions and equities and M&A advisory in Asia.
It expects GBM revenues to rise by about 5 percent a year from $18.1 billion last year and to keep costs flat at $9.1 billion.
Assaf said he only expected about $400 in annual revenue declines from the reduction in assets, though analysts warned that many banks have seen bigger than expected revenue falls where they have cut assets.
Editing by David Clarke