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Morning Coffee: HSBC's layoffs show who it's ok to cut during COVID-19. The people who say “no” to a firmwide salary reduction

Early on in the coronavirus crisis, most of the big investment banks announced that their cost cutting and redundancy programs would be put on hold.  There were a number of reasons for this.  For one thing, the virus presented a whole new set of operational challenges, meaning that people who might have been identified as “excess overhead” were actually needed to help handle the chaos.  The economic fallout also created a huge amount of uncertainty, making stars of previously challenged business lines and creating big losses in what had been thought to be focus areas. 

There was also the question of morality. As James Gorman at Morgan Stanley said last week, it simply seems morally wrong to make people redundant in the middle of a historic recession if you don’t absolutely have to, particularly when you would have to do it via videocall.  Many banks seemed to reason that in a people business, delaying cuts for a few months might be cheap at the price for preserving team spirit, while saving money on headcount could be extremely expensive if people turned out to have long memories for who did the wrong thing.

It might turn out, though, that this logic doesn’t apply all the way up the org chart. HSBC was among the banks promising to delay "the vast majority" of its planned 35,000 redundancies due to COVID-19.  However, according to memos seen by Reuters and confirmed by the company, it's is moving ahead on quite a few of its top-level cuts, some of which we were first to report last week. The cuts were always expected following CEO Noel Quinn's pronouncement that “regional heads will roll” in the Global Banking and Markets (GB&M) business line.  Some of the top brass will be moving to other jobs in asset disposal units and the like, but Andre Cronje is leaving the bank, Gordon French will take a “six month sabbatical” and Andre Brandao “will stay on until the end of the year until a further announcement is made”.

HSBC's move seems to suggest that moral and reputational considerations were more important than operational ones.  All the people mentioned in the memo have had long and successful careers and will probably do better by leaving now, on sabbatical or otherwise, than hanging around until the bank feels able to make an official announcement. After all, the strategic plan was announced in February, and everyone knew that HSBC wanted to cut the number of geographic reporting levels from seven to four.  Internally, it will therefore have been clear for sometime what was coming.  And there are few things more frustrating for a senior manager in any industry, let alone one based on personal franchises and relationships, than being stuck in a post where you can’t make long term plans.

HSBC's 'COVID-layoffs' may nonetheless have a read-across to other banks. While junior bankers and middle and back office staff might struggle if their jobs are cut in the middle of a pandemic, senior bankers with long years of earning six figures should be shielded by a cushion of assets. As banks raise their heads above the parapets and make the cuts that are surely coming, it's these most senior people who they will feel most comfortable letting go.  

Separately, it might be argued that bankers at all levels have it easy right now. In professional services firms, people are being asked to take one for the team, and to agree to pay cuts, particularly at senior levels, in order to preserve cash flow and avoid compulsory redundancies.  Although there’s a lot of pressure on executives to say yes, it’s actually a quite complicated matter to work out exactly how much you’re being asked to give up; in particular, contract variations need to be clear on when and how normal pay might be reestablished, and whether any future redundancy pay will be based on the reduced amount.

Nevertheless, most people agree; KPMG Australia had only 50 refusals out of 8,000 staff.  This leaves us wanting to know more about those 50 people.  Surely the biggest worry would be that to refuse to take the cut would be to paint a target on oneself for the redundancies when they came?  Perhaps these people regarded themselves as irreplaceable, or alternatively that they were bound to be fired anyway.  Perhaps they thought the bosses were bluffing, or perhaps they just couldn’t afford it – a previous draft of the internal communication had required people to provide “specific reasons” for not agreeing.  There must be some interesting stories, although possibly not ones that anyone will be hugely keen to tell.

Meanwhile. …

As in the film “Red” (and, somewhat more tastelessly, “The Expendables”), the old-timers are being brought back for essential missions.  Lazard, HSBC and Citigroup have all been scrambling to bring restructuring bankers out of retirement or other business lines, in order to keep up with an expected bonanza of work (Financial News)

Some of the super-rich in New York have arranged for their housekeepers and gardeners to be quarantined with them.  But most apartment buildings are not allowing staff, even if you have room for them.  So many of the elite, presumably including the top of the Manhattan hedge fund and investment banking worlds, are cleaning their own houses for the first time in a while.  (New York Post)

JP Morgan is announcing a plan – but no firm timeline as yet – to bring its employees back into the office, based on guidance from governments and health authorities. (Reuters)

Citi, on the other hand, has warned its staff that its decisions may end up being more cautious than local governments in some countries and regions.  “Virtually all” Citi’s traders are off the floors. (Bloomberg)

Possibly unsurprisingly given the performance of the investment bank that Edward Bramson wanted to get rid of, institutional shareholders are lining up behind Jes Staley and against the activist investor (Financial News)

“There’s a whole sequence of events here that, quite frankly, was really unfortunate for me personally”.  Phil Falcone, hedge fund star of a few years ago, borrowed money secured against his art collection (and his houses), and then things started to go badly wrong… (Institutional Investor)

Did you know there was a surprisingly successful version of Club Penguin for hedge fund founders and billionaires? (Business Insider)

Jack Allard, the Bank of America analyst who was one of the first investment bankers in New York to get seriously ill with coronavirus, is out of hospital (ABC7NY)

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AUTHORDaniel Davies Insider Comment

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