HSBC can't compete with Wall Street giants, plans scale-back

by Harry Wilson and Helene Durand

HSBC Holdings Plc will wind down some of its investment banking operations in Europe, the UK and the Americas in the latest sign that Chief Executive Officer Georges Elhedery is willing to be ruthless in his ongoing restructuring of the bank.

Europe’s largest lender will no longer provide equity underwriting and advisory services outside of its core operations in Asia and the Middle East, according to a memo seen by Bloomberg News. 

“We will retain more focused M&A and equity capital markets capabilities in Asia and the Middle East, and we will look to wind-down those activities in Europe, the UK and the Americas,” the company said in the memo. 

The bank, however, will complete any live deals and mandates, the memo said. HSBC will offer special incentives to keep those staff motivated as those roles will end once the current work is wrapped up, a person familiar with the situation said, asking not to be identified discussing private information.

Since taking the helm in September, Elhedery has kicked off a sweeping revamp of HSBC, arguing a new structure would make the company more competitive. He’s already announced the merger of commercial and investment banking outside of Hong Kong and the UK, and eliminated layers of senior management.

With his latest move, Elhedery is taking the axe to a part of his business that has long faced scrutiny from investors because of its struggle to gain market share over the years. While HSBC is one of the largest lenders in the West, it’s not often corporate clients’ first port of call for their investment banking needs.

HSBC lacks the scale in New York, London or continental Europe to compete against Wall Street giants, and the move is aimed at focusing on areas where they can vie for business, the person said. 

The lender will continue to offer debt underwriting and leveraged acquisition finance, according to the memo. Those businesses will be complemented by the firm’s corporate risk solutions and strategic equity and financing divisions. There will be little impact on global market operations and Innovation Banking, the person said.

A spokeswoman for HSBC declined to comment beyond confirming the contents of the memo.

Several top executives, including Nuno Matos — who ran wealth and personal banking and was Elhedery’s main rival for the CEO role — have exited amid his restructuring of the bank. Some employees in areas such as the corporate and institutional banking arm have been warned to expect lower bonuses this year, while internal guidance so far is that the payouts are likely to disappoint in the coming weeks, Bloomberg News reported this month.

Final numbers for job losses haven’t been decided yet, and some staff will be redeployed to Asia and the Middle East where they will be bolstering their position as a main player, the person said.

Executives hope the revamp will help them shave off at least $3 billion in expenses, Bloomberg News reported previously. That would represent a roughly 10% cut in the bank’s expense bill, which is estimated to be around $32.6 billion for the year. 

Bloomberg Intelligence analysts have said that the cost-cutting could be “dialed up” to provide a greater boost to profits. In particular, the analysts expect to see more cuts to the bank’s $19 billion annual wage bill, which makes up the bulk of its expenses.