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CommentP&M Notebook

P&M Notebook: the new HSBC?

HSBC, despite riding high in the bond league tables, has never had a reputation for being the fiercest global investment bank on the Street. Is that changing?

This week, HSBC started a round of cuts, supposed to hit 100 or so of its bankers in the global banking and markets division. For a firm as large as a medium sized town, 100 staff cuts may not sound like a lot, but it could be a part of the bank’s attempt to remould itself as a more go-getting, ruthless investment bank, where top talent is rewarded and underperformers moved on.

It follows a remoulding of the firm’s banking division last spring, which saw coverage bankers and the product specialists in capital financing housed in the same organisation.

It also follows the hire of Matthew Westerman, a former chairman of investment banking at Goldman Sachs, to co-head global banking. This creates a neat narrative for the media — thrusting Goldman banker shakes up HSBC — but it is possible Westerman is consequence as much as cause of the new dispensation at the bank.

After all, he had to be hired in the first place, which indicates a desire at the highest levels of the bank to reorientate for a shot at the bulge bracket. And the reorganisation of global banking came in quickly after Westerman joined. He knew the firm well, having covered it at Goldman, but the process must have been in train well before he started.

Anyway, though the cuts have affected some long-standing HSBC bankers, the firm is not downgrading its ambitions — quite the reverse. While some of Europe’s top investment banks grapple with restructurings, that creates an opportunity for well-capitalised commercial banks that can cut large cheques.

That's likely the rationale behind hiring Ray Doody, the former EMEA head of leveraged finance at JP Morgan. Leveraged finance is the most profitable DCM activity, and the way banks with substantial balance sheets can use their cash to drive business from financial sponsors, and win more strategic roles as M&A advisers or ECM underwriters. 

A new hire, especially one from a top-flight bank like JPM, is therefore not to be sniffed at. Doody started seeking another role internally at JPM last autumn, meaning he may well have been open to an approach, but he's been at JPM since at least 2001 in a role with some serious revenue attached.

Also moving up the capital markets value chain is BNP Paribas, also on the march, with a new head of equity capital markets from Citi, as well as a new head of corporate access and deputy head of equity sales.

The bank has adopted the curiously specific target of getting to the top seven in EMEA ECM, with a market share increase from 3% to 5% — that’s perhaps a reflection of the tenacious hold of the banks in the top six, or an acknowledgement that the days of chest-beating team hires and buying league table are over.

While all this has been going on, Commonwealth Bank of Australia has been working on The Future of Bond Markets – the much-hyped blockchain technology. The bank, working with Queensland Treasury Corporation, has done a trial run of a primary bond issue on blockchain.

QTC issued the bonds to itself, but announced an auction, delivered documentation, ran an order book and settled the issue using CBA’s blockchain platform. Perhaps it’s just attention seeking at this point, but the benefits are the same as they are for any other blockchain application — a single, authoritative copy of any given information set.

The ownership of the bonds, the collection of the payment, and even the coupon payments are all automatic and self-executing processes, as are investor orders. That enhances trust and cuts out complexity — but then, bond auctions with their clearing and settlement aren’t that inefficient today, with old-fashioned ledgers kept by old-fashioned clearing houses. There may be many and various obstacles to issuing bonds, but the cost of clearing probably isn’t up there.

That might be why other blockchain initiatives have focused on either the wildly inefficient markets that are left — loan settlement, for example, where T+7 is considered an optimistic goal — or markets, like the Australian Stock Exchange’s equity settlement systems, where saving every wafer of the cost of trading is a meaningful competitive advantage.

That’s probably Deutsche Börse’s thinking — lightning fast settlement on the Frankfurt Stock Exchange — but the group is also working on using blockchain to move collateral more efficiently between the clearing members of Eurex, its centralised counterparty. 

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