LONDON, Feb 22 (Reuters) – Climbing costs at HSBC HSBA.L have added to growing investor concerns about how big banks manage their expenses, putting executives under pressure to quickly address spending. Although banks have seen revenues balloon in the higher interest rate environment of recent years, fast-rising costs are now beginning to pinch, consultants and shareholders said. Recent results have shown lenders struggling with wage bills, regulatory costs and accelerating investment plans. HSBC on Wednesday reported a 6% hike in costs in 2023, blaming spending on levies in the U.S. and Britain. Europe’s biggest bank by assets also forecast a 5% rise in costs in 2024, after committing to invest despite stubbornly high inflation. A report last year by consultants Oliver Wyman and investment bank Morgan Stanley highlighted the need for banks to avoid one-size-fits-all cost-cutting strategies, in order to achieve savings with minimal effect on revenues. HSBC’s 2023 pretax profit jumped 78% to $30.3 billion, but missed consensus estimates due to an unexpected $3 billion writedown on its stake in China’s Bank of Communications. And while a fresh $2 billion stock buyback went some way to soften these blows, some fund managers expressed concern. “Costs are clearly disappointing, with inflation and investment casting a shadow and posing a risk to earnings,” Hywel Franklin, head of European Equities at Mirabaud Asset Management told Reuters after the HSBC results. British bank Barclays on Tuesday set out savings and cost-income ratio (CIR) targets that also fell short for some investors. Barclays BARC.L said it hoped to shave around 2 billion pounds off its costs over the next three years, lowering its CIR to “high-50s” by 2026, from 63% at end-2023. HSBC Chief Executive Noel Quinn said his bank was navigating the cost strains better than the surprise overspend implied, with its CIR for 2023 down to 48% last year, from 64% in 2022. Asset sales were also proving a useful cost management tool. “We are actually selling a billion dollars worth of costs,” Quinn said, pointing to sales of HSBC’s French retail and Canadian arms which were completed in recent weeks. “We continue to try and offset investment in the business for growth and efficiency reasons with savings elsewhere,” Quinn added on a media call. Other European banks have also felt the squeeze. Credit Agricole CAGR.PA this month reported a 15% jump in year-on-year underlying operating expenses in its fourth quarter, more than expected, and flagged a further 8% rise in costs for 2024. Deutsche Bank said on Feb. 1 it would cut 3,500 roles as it tackles a 75% CIR and a 6% rise in 2023 non-interest expenses. COMPENSATION The Oliver Wyman and Morgan Stanley report said that global banks could redesign their workforce to clarify roles and align compensation, while corporate specialists should trim regional footprints to prioritise on recession-proof revenues. As inflation continues to pressure their returns, some investors and analysts said bank executives needed to exercise restraint on share buybacks and pay, pending further progress on broader savings and in case of possible economic shocks. “Buybacks artificially inflate earnings per share, potentially leading to unsustainable practices over quarterly periods,” Allen He, Research Director at FCLTGlobal, told Reuters, in comments about companies in general. Meanwhile, compensation is being viewed as an increasingly significant component of banks’ rising cost bases. A report on Feb. 8 from shareholder advisory firm Glass Lewis said it would “carefully review the strategic rationale for any rebalancing of bankers’ pay packages” in view of changes to regulation that removed caps on bonuses. Quinn saw his total pay double in 2023 to $10.6 million from $5.6 million the year before, as long-term incentives from his appointment in 2020 began to vest, boosting his variable pay. HSBC’s bonus pool rose to $3.8 billion from $3.4 billion in 2022, reflecting improved performance, and it would launch a variable pay scheme for junior and middle management staff. That contrasted with Barclays where the bonus pool dipped 3% in 2023 to 1.75 billion pounds and CEO C.S. Venkatakrishnan saw his total pay fall from 5.2 million pounds to 4.6 million. The Glass Lewis report said it would “generally expect increases in variable incentive opportunity to be accompanied by an appropriate reduction in fixed pay”, adding that the first bank to propose substantial changes may act as a litmus test. “If an overhaul of pay is well-supported by shareholders, the other banks’ interest may well be piqued,” it said.v

RIO DE JANEIRO – Western foreign ministers from the G20 group of nations meeting in Brazil on Wednesday attacked Russia for its invasion of Ukraine as Russian Foreign Minister Sergei Lavrov listened, diplomats said.

“Russia must be made to pay for its aggression,” British Foreign Minister David Cameron told the closed session, according to his office.

The top diplomats from the United States, Australia, Canada, Germany, Italy, France and Norway made similar remarks on the first day of a two-day meeting.

Norwegian Foreign Minister Espen Barth Eide told reporters that Mr. Lavrov calmly replied to Mr. Cameron’s remarks with “a set of alternative facts” about events in Ukraine.

Mr. Lavrov did not speak to reporters. Russia’s justification of its “special military operation” in Ukraine, which began two years ago, initially was to “de-Nazify” Ukraine. More recently, Moscow has emphasized that it needs to defend against Western aggression.

The meeting was set to prepare the agenda for a G20 summit in November. At a summit in September, G20 leaders adopted a declaration that avoided condemning Russia for the war in Ukraine but called on all states not to use force to grab territory.

Mr. Cameron also noted the death of dissident Alexei Navalny in a Russian prison last week.

Mr. Eide said the G20 session in Rio focused mainly on conflicts in Gaza and Ukraine.

“We have to support Ukraine until it emerges as a free and independent sovereign country without another army on its soil,” the Norwegian minister said he told the meeting.

Mr. Eide said the ministers who spoke at the meeting agreed with the need for a two-state solution in the Middle East but there was no consensus on how to achieve it.

Brazil, this year’s president of the G20, opened the foreign ministers’ meeting by blaming the United Nations and other multinational bodies for failing to stop conflicts that are killing innocent people.

Foreign Minister Mauro Vieira called for “profound reform” of global governance as Brazil’s top priority this year.

“Multilateral institutions are not adequately equipped to deal with current challenges, as demonstrated by the Security Council’s unacceptable paralysis in relation to ongoing conflicts,” Vieira said at the meeting.

“This state of inaction results in the loss of innocent lives,” he said.

US Secretary of State Antony Blinken met with Brazilian President Luiz Ignacio Lula da Silva in Brasilia on his way to the Rio meeting and expressed US support for Brazil’s agenda to make global governance more effective.

The top US diplomat discussed Israel’s war in Gaza with Mr. Lula amid a diplomatic spat after the Brazilian leader likened Israel’s war to the Nazi genocide during World War Two, a US spokesperson told reporters.

Mr. Lula’s accusations last week of atrocities by Israel in Gaza triggered a diplomatic crisis with an Israeli reprimand and Brazil recalling its ambassador. – Reuters