Morning Coffee: HSBC loses patience with overpaid underperforming bankers. JPMorgan banker punched outside office
If this is what the interim CEO can do, how bad will it be when HSBC gets its new forever-boss?
The Financial Times reports that Noel Quinn, the man who was appointed HSBC's interim chief executive in August, has decided to take some drastic action which should at least give him an enduring legacy. Quinn has reportedly decided to cut another 10,000 people on top of the 4,700 HSBC already committed to cut in August. And he knows exactly who he's going after.
“There’s some very hard modelling going on. We are asking why we have so many people in Europe when we’ve got double-digit returns in parts of Asia,” one of the people briefed on the new cuts told the FT. Quinn's cuts will focus particularly on highly paid roles, the FT added. In other words, HSBC's directors and managing directors in London are in the firing line.
Quinn's unexpectedly aggressive approach seems calculated to endear him to HSBC's board, which was frustrated with his predecessor's failure to 'take big decisions.' The FT says Quinn was already the preferred candidate for becoming perpetual CEO and that he's been given the authority to make 'big strategic moves.' Slashing 10,000 staff therefore looks a lot like Quinn's pitch for the top job.
Unfortunately for senior HSBC bankers in London, cutting in Europe looks like a no-brainer. In the the first half of the year Europe made a pre-tax loss of $520m (and was the only region to make a loss) while Asia made an enormous pre-tax profit of $9.8bn. Moreover, the loss-making region of Europe is really the UK, which single-handedly achieved a loss of $1.3bn.
HSBC's British bankers might cry foul. As we noted last week, cost-allocation is becoming a new battleground in the politics of redundancies and HSBC's UK office is hugely loss-making mostly because it's saddled with $1.5bn of costs from the global corporate centre. By comparison, however, the bank's corporate centre in Asia somehow manages to turn a profit.
It's not just the corporate centre that's loss-making at HSBC in Europe though. HSBC's global banking and makets (investment banking business) in London alone made a loss of $220m in the first half of this year, while in Hong Kong it made a profit of $853m. It wasn't always like this - in the first half of 2018 the two regional GB&M businesses made profits of $473m and $915m respectively. Hong Kong is therefore clearly the stronger of the two, but London isn't always awful. And London's first half figures were disadvantaged by costs associated with Brexit and by compensating British consumers for the 'PPI' scandal. PPI alone appears to have cost another $600m, but is now over with.
Irrespective of all these exonerating factors, however, Quinn seems to have decided that bold and decisive action should be his signature move. HSBC does have a reputation for its comfortable ranks of comfortably paid senior staff and he may be right that a serious shake-up is overdue. The only safe senior bankers at HSBC in Canary Wharf are probably in the commercial banking division that Quinn previously worked for - this made a profit of $742m in the first half, and was the only HSBC U.K. business in the black.
HSBC's U.S. bankers may wonder where they stand in all this. The answer is probably, 'on the sidelines.' The U.S. business as a whole made a comparatively modest profit of $746m in the first half of 2019 and the global markets business in the U.S. made a profit of $244m. If you're pitching for the CEO job by taking out obvious costs, the U.S. market is not where you'll take action first.
Separately, while HSBC doubles-down on Hong Kong, things in Hong Kong are becoming more volatile. There were renewed protests this weekend at government attempts to ban protesters from wearing masks to existing protests against Hong Kong's assimilation into China, and police use of live ammunition. A JPMorgan private banker was punched by a protestor outside the bank's offices on Saturday for reportedly shouting "We are all Chinese" to journalists. JPMorgan advised 'non-essential' employees to work from home as a result, and said it was adding extra security.
The London stockmarket is shrinking. By the end of September, the LSE had had only 25 IPOs compared with 55 in total last year. (Financial Times)
Iqbal Khan is still engaged in building work for his house next to Tidjane Thiam. Last week he took delivery of some building blocks from a huge crane mounted on a six-wheeled truck. The crane blocked the road and prevented Thiam from getting to the airport. (Financial Times)
A fund manger says Thiam and Pierre-Olivier Bouée, who left Credit Suisse last week over the Khan spying scandal are such good friends that they go clubbing in Ibiza together. (The Times)
Ex-Credit Suisse CEO Oswald Grubel is still calling for Thiam to stand down. (NZZAS)
Lindsey McMurray runs London's Pollen Street Capital. In a world full of privately educated men, she grew up on a Glasgow council estate. (The Times)
PJT Partners paid its 137 UK employees an average of £545k last year. (The Times)
It's hard to find an educated, solvent man (except in banking). (WSJ)
Pity the high earners. They are working very hard for their advantages and they are working just as hard to secure them for their children. (New York Times)
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