Why HSBC's investment bankers could feel good about themselves, a chart
HSBC's results were out this morning. The bank, which is still based in London for the moment, was 'reassuringly dull' according to Ian Gordon at Investec. Revenues were weak in the third quarter (down 3% year-on-year in global banking and markets) but that didn't really matter, because unlike other European banks HSBC seems to have done an extremely good job of reining in costs.
While both Deutsche Bank and Barclays are struggling to bring their investment banking costs under control, costs in HSBC's investment bank already look tamed. In the third quarter of 2015, the 'cost-efficiency ratio' (costs as a percentage of revenues) in HSBC's global banking and markets (GB&M) division was just 57.3% compared to 79.7% a year earlier. In the nine months to September, the cost efficiency ratio in GB&M was 56.7%, compared to 60% a year earlier.
As a result, profitability in HSBC's GB&M division rose 9% this year, while profits in every other area (retail banking and wealth management, commercial banking, global private banking) fell - in some cases considerably, as shown by the chart below.
There's been a big increase in profits at HSBC's investment bank over the past nine months:
HSBC's cost control looks all the more impressive when you consider that most European investment banks have a cost income ratio well in excess of 70%
As ever, however, it's not that simple.
While profits in HSBC's investment bank are roaring ahead, profits HSBC's 'other' division are plummeting as shown in the chart above. It's in this 'other' division that the bank accounts for the central 'stewardship and central management services' it provides to its businesses. It's here, therefore, that HSBC's increased regulatory costs might manifest themselves. So far in 2015, HSBC has added 2,231 full time employees, most of them related to compliance and regulation. If they were added in, maybe HSBC's investment bank wouldn't look so lean after all?