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HSBC’s strategic review, published on Wednesday, is a telling comment of how Europe’s biggest bank views emerging markets.

Out go earlier plans to expand retail banking services in some smaller countries, notably Poland. In comes a sharper focus on serving the largest and most dynamic economies and “limiting” retail banking to markets “where we can achieve profitable scale”.

For shareholders that may mean better returns, as HSBC is indeed promising. For smaller EMs it might herald a bigger struggle to attract top-flight multinational financial groups. For smaller banks – international and domestic – it could open new opportunities.

HSBC’s commitment to EMs remains as strong as ever, as chief executive Stuart Gulliver said:

HSBC’s  network covers the majority of world trade and capital flows and provides access and exposure to faster-growing economies. By 2050, 19 of the world’s largest 30 economies will be from what are currently termed emerging markets. …Our strategy is to be the leading international bank, concentrating on commercial and wholesale banking in globally connected markets. We will also focus on wealth management in 18 of the most relevant economies and limit retail banking to those markets where we can achieve profitable scale.

In retail, HSBC is talking about scaling up – as in moving upmarket – rather than scaling down – as in making cuts. It wants to focus attention on the overall plan to concentrate on wealth management for richer customers.

But there will be cuts, disposals and possibly closures, even though the bank wasn’t disclosing many details on Wednesday morning. It indicated that some proposals might be revealed in regional presentations later on Wednesday and others had still to be finalised.

Regional summaries in Gulliver’s slide presentation spell out what he means. In Latin America, Brazil, Mexico and Argentina are coloured red on a map and labelled “strategic market”.

Other countries are portrayed in a distinctly downbeat way. They are either pink – “present” – or grey – “not present”.  So HSBC managers in Peru (coloured pink), for example, might have cause for concern. Without naming countries, Gulliver’s presentation sums up the future for these EMs: “Review opportunities to reallocate capital from less strategic and underperforming businesses.”

In Europe, the red states are the UK, France, Germany and Turkey. For the rest the message is “restructure sub-scale continental European operations (eg retail banking in Russia)”.

The Russian plans have already been publicised, so no news there. But what is news is that HSBC has, after a couple of years of effort,  abandoned ambitions to build or acquire a big retail presence in Poland. Poland, like Spain and Italy is labelled “present”.

In the Middle East, Egypt, Saudi Arabia and most of the Gulf states are “strategic”. In Asia, it’s greater China, India, Singapore, Malaysia and Indonesia.

The fact that this includes six states (counting Taiwan) compared to three for Latin America and four for Europe highlights HSBC’s origins in and commitment to Asia. But even in Asia there are candidates for cuts. “Focus resources selectively in other markets to maintain leadership in connectivity,” says Gulliver’s presentation.

Gulliver says five filters will drive decisions on disposals and closures of non-strategic and/or underperforming positions/businesses: connectivity (in global business networks), economic development, profitability, efficiency and liquidity.  Announcements on transactions (ie disposals etc) are  to come within 12 months.

Gulliver is aiming for $2.5-3.5bn in sustainable cost savings around the globe (including the problem-prone North America) in three years and achieving a cost efficiency ratio of 48- 52 per cent by 2013, down from 55.2 per cent  now.

The extra push in wealth management, including in EMs, is forecast to generate $4bn in additional revenues and the new emphasis on intra-group connectivity between corporate and global banking an increase of $1bn.

Investors, who were perhaps hoping for more radical action, marked the shares down 0.8 per cent in London morning trading. But the announcement is only the beginning. What matters is execution, as managers in both “strategic” and “present” countries are about to find out.

Related reading
HSBC braced for Gulliver’s travails,FT
HSBC profits hit by charges,FT
Breakfast with the FT: Stuart Gulliver, FT