HSBC restructuring will be a tough slog

HSBC’s anticipated cuts to its global banking and markets (GBM) division may make sense. But they will not be easy to pull off smoothly.

  • By Jasper Cox
  • 26 Nov 2019
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The bank will announce its plans to reallocate capital across the business by February. The indications are that GBM will lose out in Europe and the US, but maybe not in Asia.

As well as the troika of chair Mark Tucker, interim chief executive Noel Quinn and chief financial officer Ewen Stevenson being set on transformation, and capital pressure from Basel IV hitting GBM, the retirement of Samir Assaf, the head of that division, has hardly quelled rumours about the scale of the changes to come.

Analysts at Jefferies foresee a plan to take out a quarter of the costs and a tenth of revenue in the division in the US and Europe. Elsewhere in the group, HSBC is expected to reduce costs in the corporate centre and divest from retail banking in France and the US.

But cutting GBM will not be an easy procedure. First, where to wield the knife? The equities business is already under review, while its FICC business (fixed income, currencies and commodities trading) is also thought to be under scrutiny.

The bank is globally gigantic in transaction banking, certain areas of FICC like G10 FX and emerging markets macro, and in debt capital markets. It is further down the pecking order in equities, M&A and equity capital markets.

The modus operandi for many banks is to concentrate on strengths at the expense of trying to provide everything to everyone. But slicing off some investment bank businesses can damage the overall offering to clients, as many suspect will happen with Deutsche Bank after its decision to pull out of much of its equities business. HSBC is also keen on the idea of GBM and commercial banking (CMB) helping each other out, but how will cuts to the former affect the latter?

Then there is the question of keeping shareholders on board. The bank’s share price is down 9% on the year, while Barclays’ is up 14%, Standard Chartered’s 19%, and BNP Paribas’s 32%.

Restructurings bring upfront costs, hindering the ability of the bank to reward shareholders in the short term. UBS analysts warn that with shareholders demanding a high cost for their equity from European banks, delaying gratification hits valuations of firms hard.

Meanwhile, HSBC’s restructuring will leave it more reliant on Asia for revenues, at a time of deep uncertainty in Hong Kong amid large-scale protests, and tensions between the US and China. It has been speculated that China was annoyed with the bank after it reportedly helped the US investigate Huawei’s finance director, who was arrested in Canada.

In the first nine months of the year, 81% of HSBC’s adjusted profit before tax came from Asia. And over that time period Hong Kong accounted for 30% of loans and 35% of customer deposits at the bank, according to Jefferies.

All this while the company has an interim CEO, an interim head of CMB (Barry O’Byrne, who replaced Quinn when he moved up) and a GBM head who is set to depart. 

Management better be prepared for some hard work.

  • By Jasper Cox
  • 26 Nov 2019

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
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1 JPMorgan 378.25 1751 8.34%
2 Citi 349.31 1498 7.70%
3 Bank of America Merrill Lynch 301.49 1296 6.65%
4 Barclays 269.96 1130 5.95%
5 HSBC 224.07 1234 4.94%

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1 BNP Paribas 48.06 225 7.37%
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3 JPMorgan 33.50 97 5.14%
4 UniCredit 29.45 158 4.52%
5 SG Corporate & Investment Banking 29.18 148 4.47%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
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1 JPMorgan 13.16 82 8.34%
2 Goldman Sachs 12.42 63 7.87%
3 Morgan Stanley 12.18 55 7.71%
4 Citi 10.09 71 6.39%
5 Credit Suisse 6.93 38 4.39%