HSBC's traders are good. But don't go getting too excited

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First HSBC hired someone from Goldman Sachs to run its global banking division. Then it cut people across investment banking and sales and trading. Now, things seem to be going right.

In the first three months of this year, revenues in HSBC's sales and trading business soared. Compared to the first quarter of 2016, equities revenues were up 44%, rates revenues were up 53%, and credit revenues were up more than 100%. HSBC's global markets business is booming. It also seems to be hiring. So should you go and work there?

For some people, the answer already seems to be yes. After a rolling redundancy programme that saw the departure of senior credit traders like Chris Case (who spent spent five months at Mizuho before turning up at Credit Agricole in March) and the exit of high yield traders John Gousias and Claus Jorgensen, HSBC is hiring again.

Greg Sadler, a top credit trader who left hedge fund CQS last year has appeared to run the financials book. Christopher Denruyter has joined as a managing director in funds derivatives trading after leaving Credit Suisse last year. The bank has also strengthened its German-speaking institutional sales team based (curiously) in Dusseldorf. If you're good, the door may well be open.

How good are HSBC's traders really though? One banking analyst cautions against irrational exuberance. Firstly - and as the charts below show, it's in credit trading that HSBC looks particularly fancy. But HSBC's credit trading business is tiny ($327m in the first quarter compared to $1.8bn at Bank of America, for example), and as such it is extremely prone to revenue volatility.

"HSBC's credit business is tiny and the volatility is huge," says Chirantan Barua at Bernstein Research. "The revenue line is extremely volatile and one quarter doesn't mean anything." In the first quarter of 2015, for example, Barua points out that HSBC's credit revenues were $338m, suggesting the latest number is merely a return to form.

If HSBC isn't big on credit, it is big on macro trading, with combined rates and FX revenues of $1.3bn in the past quarter. Here, HSBC didn't do quite so well compared to rivals. RBS was the clear winner in the macro space in the past quarter, although it was helped here by its focus on rates trading as opposed to flailing foreign exchange. Even so, HSBC's macro revenues look comparatively unimpressive.

This leaves equities, where HSBC's traders achieved a 43% year-on-year revenue increase. This looks unequivocally good and far outshines all other banks. Even here, however, Barua advises caution. "HSBC's equities business is all in Asia," he says, "And the first quarter of 2016 in Asia was very bad." Accordingly, HSBC's equities trading revenues can be read as a return on the norm, and at $334m for the quarter they were far below the $629m Barua says the bank achieved in Q2 2015.


Photo credit: HSBC (reflection) by Gordon Joly is licensed under CC BY 2.0.

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