Are HSBC's investment banking bureaucrats about to get culled?
Among its detractors, HSBC's Global Banking and Markets has a certain reputation: as a perfectly pleasant place to work, replete with HSBC lifers, many of whom add little value.
This could be about to change.
HSBC's interim results confirm that the bank still has cost issues.
When HSBC reported its full year results back in February, Stuart Gulliver said the 55% cost ratio was "unacceptable" and announced a target range of 48-52%.
That target hasn't been met. Today, HSBC revealed that its cost ratio has risen to 60.9%.
Costs are still substantially above the target range even when all one-offs are stripped out. Analysts at KBW point out that the underlying cost ratio, excluding cancelled software packages, PPI costs, Latin American restructuring and a $70m 'bonus recognition' charge, was still 55.1% in the first quarter.
Cuts are coming
Cuts are therefore coming soon, but where will they fall?
Most analysts are predicting pain in overseas retail operations. HSBC has already closed its Russian retail business and US retail closures are predicted.
However, Global Banking and Markets bankers should not be overly complacent about job security. "Widespread efficiency improvements will be required to reduce the cost income ratio in line with targets," says Arturo de Frias, head of banks research at Evolution Securities. "They will probably need to occur across all businesses, including GBM."
Managerial rationalisation?
Within GBM, the most obvious target for efficiencies will be middle and back office roles and areas of the FICC business which are less profitable under increased capital requirements. (HSBC says it's been hiring in equities, although headhunters say there hasn't been much sign of this in London).
However, headhunters suggest there are also a lot of underperforming senior staff who could go. "HSBC is top heavy," alleges one. "There are a lot of people who have been there a long time."
"HSBC is heavy on headcount and low on quality," suggests another. "The team heads and the divisional heads are all very well remunerated, but below that it drops off a cliff. They could cut costs by trimming some of those senior people."
The Financial Times cites an HSBC 'executive' who seems to have reached the same opinion.
"Mr Gulliver knows that there are whole levels of management that could be removed without doing any real harm to the business," he tells the paper.
Unlike Goldman Sachs, HSBC doesn't engage in an annual extraction of its bottom 5% of performers. However, one headhunter says this isn't necessary: "HSBC have a lot of natural attrition," he claims.
HSBC bureaucrats may be hoping that a lot of people leave voluntarily soon.
