"HSBC's problem is that it just doesn't have enough good people"
HSBC is winding down its M&A and equity capital markets (ECM) businesses in Europe and the US. While insiders purport to be surprised, the closures have an air of inevitability. HSBC's bankers are peculiarly unproductive in terms of revenues per head. In the Americas, Dealogic says HSBC ranked outside the top 10 for M&A and ECM last year. In Europe, it squeezed in with a ninth position in ECM, down from 7th in 2023.
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It's not, however, for want of trying.
Over the years, HSBC has spent billions trying to build out its investment bank on the back of its huge balance sheet. John Studzinski, who ran the investment bank between 2003 and 2005 was reportedly spending up to $400m on the project, while earning an average of £10m a year himself. Studzinski spent some of that money on big name hires: Daniel Palmer, for example, joined from Morgan Stanley in 2006 on a package said to be worth $15m over three years; he returned to Morgan Stanley when it ran out.
In 2016, HSBC hired Matthew Westerman from Goldman Sachs to run its investment bank. Westerman fired 100 people and hired some new ones. He also tried to introduce a new pace to the business, but he too left again 19 months later after ruffling the feathers of HSBC's slower moving incumbents.
Now HSBC is cutting those and other losses under Georges Elhedery, its new CEO. Elhedery is not a banker, but a fixed income trader.
Sources at HSBC said the bank has already told bankers in London to stop originating deals in M&A and ECM, implying that managing directors there may want to leave soon. However, headhunters say their ability to walk into new jobs elsewhere is questionable.
"HSBC has always had a weakness," says one ex-senior HSBC banker. "It's not the fact that there aren't good people, but that there aren't enough of them." Insiders have been saying this for years: in 2018, a group of senior bankers there wrote an anonymous letter complaining of incompetence. A year later, Robin Philips, who'd run HSBC's investment bank for the previous 13 years, retired.
That was six years ago. Contemporary critics point to "stasis" among the HSBC old guard and to a recent tendency to hire people "from the beach or nearing the end of the road." - "You can't build a business around nobodies," the former insider observes. One headhunter says HSBC is used in the market as a rude acronym, which we will not repeat.
Recent senior hires might object to the nobody classification. Under Greg Guyett, the former CEO of banking and markets, HSBC embarked upon a program of adding 200 dealmakers in two years last March, albeit mostly in Asia and the Middle East.
As the charts below show, HSBC doesn't seem to have much to show for Guyett's hiring. This is partly a reflection of market conditions: data from Dealogic suggests the bank increased its market share slightly in ECM in both Europe and the Americas last year, for example.
The fear now is that the closure of the M&A and ECM businesses in Europe will prefigure cuts elsewhere. "Banking is a global business. The idea that you can pick off a region and think everything else will be fine is fantasy," says the senior banker. "They are tugging at a ball of wool, and it's not clear where it will end."
Photo by Anthony Tyrrell on Unsplash
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