HSBC’s new boss will announce a major strategy review tomorrow in a bid to cut costs after the global banking firm unveiled a drop in firstquarter profits.

Group chief executive Stuart Gulliver is expected to undertake a crackdown, with branch closures and job cuts from middle management positions among the options which are under consideration.

A bill of £268.7m to cover payment protection insurance (PPI) compensation, as well as weaker trading in Europe and the US, sent pre-tax profits tumbling 14 per cent to £3bn in the quarter to end March, from £3.38bn this time last year.

HSBC said that it had accepted the decision of the British Banking Association to drop its legal action on PPI because the bank was the least affected and it had little chance of winning on appeal.

HSBC’s provision is much lower than the £3.2bn set side by Lloyds last week and the £1bn earmarked by Barclays.

Mr Gulliver said that was because it stopped writing PPI business in 2007 rather than any indication it will be tough on claimants.

The bank’s cost ratio rose to 60.9 per cent in the latest quarter, but this included the PPI provision and other one-off items.

Without the restructuring charges, the cost ratio was 55.1 per cent, largely flat over the quarter, but still above Mr Gulliver’s target of 52 per cent.

“It will take two to three years to sort out the cost efficiency problems of the group,” he warned.

Profits improved in wealth management and retail banking, but staff costs rose in its fast growing emerging markets in the Far East, while global banking and markets profits were lower.

In Europe, lower trading activity and the PPI charge hit profits by 65 per cent from £1.13b to £400m, while US profits fell by 60 per cent.

Rival bankers Barclays had set aside £1bn to cover potential claims arising from misselling of PPI policies, while only last week, Lloyds Banking made a PPI-related provision of £3.2bn.

HSBC also confirmed that it has delayed a decision on whether to shift its headquarters out of London until next year.

This is in order for it to absorb the final recommendations from the Independent Commission on Banking (ICB).

The bank is believed to be concerned that the approach favoured by the Commission, which would separate UK retail deposits and loans from the corporate book, could jeopardise its lending to UK companies.

The ICB, which is chaired by Sir John Vickers, is due to publish its final report in September.