HSBC Europe’s largest bank, has dropped plans to freeze pay this year, reversing a cost-cutting decision made less than two weeks ago. The bank has also decided to keep its global HQ in London rather than move to Hong Kong

HSBC chief exec Stuart Gulliver expresses announced the pay freeze reversal in a memo to staff Pay rises will be funded from a bonus pool originally intended for payments to be made in 2017, the memo from Gulliver to all employees and dated Feb. 11 said.

A hiring freeze introduced in the fourth quarter of 2015 will remain in place. The bank, which had more than 266,000 staff at the end of 2014, plans annual cost savings of up to $5 billion by 2017.

“As flagged in our Investor Update we have targeted significant cost reductions by the end of 2017,” a spokeswoman for HSBC said in a statement.

Gulliver said that following feedback on the pay freeze and the way it was communicated, he had “decided to change the way these cost savings are to be achieved”.

“We will therefore proceed with the pay rises as originally proposed by managers as part of the 2015 pay review, noting that, consistent with prior years, not all staff will receive a pay rise.”

Bonuses for 2015, which are due to be paid in 2016, will not be affected, the memo said. Gulliver also highlighted in the memo his concerns for the global economy from falling oil prices and slowing Chinese growth, as well as lower growth expectations for Britain.

“These macroeconomic pressures mean we must be cautious and realistic about the outlook for our revenues in 2016,” the memo said.

Worries about global growth have heaped pressure on the banking sector in recent months. “Several of our competitors have recently announced large-scale redundancies, salary freezes, bonus reductions and

further cost reduction programmes in addition to those already in place and hence it is clear we are not alone in facing these challenges,” Gulliver said.

Ten of Europe’s biggest banks announced staff cuts of 130,000 in the second half of 2015, according to data compiled by Reuters, more than the total number of job losses announced by those banks in 2013 and 2014. Investors believe, however, that the industry will need to slim down further and faster to boost profits.

Meantime HSBC is to keep its headquarters in the UK after a 10-month review during which time the government has made a series of changes regarded as favourable to the bank.

Chief exec Gulliver said  “Having our headquarters in the UK and our significant business in Asia Pacific delivers the best of both worlds to our stakeholders.”

The much-anticipated decision was announced after a board meeting in London, where the bank has been based since moving its headquarters in 1992 at the time of the takeover of Midland Bank. It comes just as China’s stock market was due to begin trading for the first time after a week’s holiday during which markets elsewhere in the world have been buffeted by fears about the banking sector.

Britain’s biggest bank said it would abandon its usual practice of reviewing its headquarters every three years after what it described as an exhaustive process. It did not list all the alternative locations that had been considered but said:

“In the later stages of the review, the analysis was narrowed down to the group’s home markets, the UK and Hong Kong, both of which are considered by the board to be world-class financial centres with high quality regulatory regimes capable of hosting a global systemically important bank such as HSBC.”

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