HSBC is increasing banker salaries, plans to grow in FX

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HSBC says it is facing pressure to raise salaries and invest in staff training as it bids to keep hold of key employees. Unfortunately, and predictably, this is largely for risk and compliance staff – a black hole of resources that is stopping it hiring for client-focused roles.

The bank has just revealed its first half results and for its global markets business, it hasn’t been overly positive. Pre-tax profits dropped by 12% on last year, to $5bn, with sliding foreign exchange revenues hitting otherwise positive performance in most business areas.

HSBC is in the midst of another cost-cutting programme that will see a further 14,000 jobs eliminated as it attempts to reduce annual expenses by $2-3bn. Despite this, chairman Douglas Flint said that the demands being placed on its employees were “unprecedented” and the bank faces pressure to hike salaries to keep hold of talent.

“We face growing fatigue within critical functions as well as increased market competition for trained staff from other financial institutions facing similar resource challenges,” he said. “This is adding to cost pressures both from increased salaries as market rates increase, and from investment in training and systems support to improve productivity.”

Much of this appears to be focused on risk and compliance staff, however, with Flint saying regulatory change was “hugely consumptive of resources that would otherwise be customer facing”.

HSBC is cutting costs where it can in its markets division, but they remain stubbornly high. The bank said the amount of money set aside for bonuses in its investment bank has declined, but employee expenses in the division are still rising - they were $1.8bn for the first half of 2014 compared to $1.6bn for the same period in 2013. It has also chopped day rates for the thousands of contractors working in its London and Paris global markets business by 10%.

HSBC has also been investing in staff for its investment bank, luring across senior deal-makers from rivals in recent months including James Simpson, who came from UBS to head M&A for EMEA at the bank, and Kristian Terling who joined as head of banking for the Nordic region from Houlihan Lokey.

The bank says that it has increased market share in debt and equity capital markets as well as M&A throughout 2014, but revenues in its advisory business were largely unchanged year on year for the first half at $2.1bn.

Revenues in its credit trading business increased by over $100m on last year to $593m and rates trading income was largely unchanged at $1.1bn. Equity trading revenues have been sliding at most banks during the second quarter, but increased by nearly $50m during the first half at HSBC to $691m.

Unlike many investment banks, HSBC says that its foreign exchange business is a priority and an area it’s likely to grow, despite a $400m year on year decline in revenues in the business. However, references to “upgrading our platforms” in its report suggest it’s going to be more about technology investment than increasing headcount in the area.

Elsewhere in its markets business HSBC says that growth areas include the less exciting divisions of trade finance and cash management.

From a geographical point of view, it seems that investment bankers in the City have most to fear from any upcoming job cuts. Revenues are down by 20% in Europe on last year, while increasing in the vast majority of regions in which HSBC operates. Headcount, meanwhile, stands at 69,642 which is over 1,300 more people than at the same point last year.

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