Here's what's really happening to HSBC's investment bank
This morning, HSBC unveiled its 'Investor Update 2015.' If you work for the British bank's 'Global Banking and Markets' business (AKA HSBC's investment bank), it might sound like bad news. After all, HSBC plans to cut risk weighted assets allocated to GB&M by one third. It also plans to make 25,000 job cuts globally, of which 8,000 are expected to fall in the UK. If you work for GB&M, now might seem the time to seek other opportunities. Except HSBC's presentation on the unit's future suggests it's not as simple as all that...
1. Yes, HSBC plans to cut risk weighted assets, but it also plans to increase GB&M revenues by mid-single digits and expects to spend an extra $1bn as a result of 'inflation and investment'
This is how HSBC plans to achieve profitability in GB&M:
So, while some areas (long dated rates, low returning loan portfolios) are likely to see vicious cost control, redundancies and exits, others like compliance and regulation are expected to experience further investment and possible hiring.
2. HSBC wants to increase its investment banking revenues here
Translated, this means HSBC wants to increase revenues coming from its client-focused business (see below), from its transaction banking business, from its Chinese currency dealings and from squeezing synergies from its different business areas.
3. Some parts of HSBC's 'client business' should benefit
HSBC wants to increase revenues from its client-facing business. Here, it derives 70% of its revenues from its market leading franchises. These franchises are as follows:
In other words, if you work in any of the areas above (except in long dated rates which HSBC explicitly says it plans to get out of), you ought to be ok.
4. HSBC can't cut tens of thousands of jobs from sales and trading because it only employs around 3,000 people in front office global markets jobs
Of the 16,3000 people working in HSBC's global banking and markets division, the chart below shows that only 6,600 work in front office roles and only around 3,000 work in sales and trading. Another 2,750 (or so) work in 'banking' roles - but this is mostly transaction banking and therefore one of the areas HSBC wants to protect.
5. It's HSBC's GB&M support staff who look most at risk
Although HSBC talks about 'realizing front office efficiencies across GB&M markets and geographies', we suspect most of the cost reductions in GB&M will come from its simultaneous intention of 'realizing efficiencies' in finance and risk.
As the chart above shows, there are more people working in support roles in global banking and markets than there are in the front office. While salespeople and traders in areas like long dated rates are clearly at risk, it's support staff who are most likely to be culled.
6. It looks bad if you work in HSBC's technology team
HSBC has the following plans for its GB&M technology team. Most worryingly, it wants to 75% of its software engineering to take place in China and India in future - up from 50% today.
7. HSBC wants to focus on clients who operate in more than 10 countries and buy more than 10 products
8. HSBC already makes more than $900m in revenues from Renminbi-related trades, split across these products
The Renminbi is due to become fully convertible by 2017, at which point HSBC thinks the revenue potential of Chinese currency trades will increase considerably.
9. But this is the chart you really need to see if you're wondering who's safe and who's not in HSBC's investment bank....