HSBC has already made a lot of redundancies: 30,000 to be precise. Some of these have resulted from business exits but others have resulted from so-called ‘organic’ culling. As we’ve noted before HSBC’s organic culling has focused on eliminating layers of middle management, although we understand a few equities bankers have also been trimmed. Unfortunately, HSBC has not been harsh enough. Stuart Gulliver said today that it may need to toughen up.
The problem, as ever, is falling revenues. However fast Gulliver cuts costs at HSBC, revenues are falling faster. Inflating compliance costs are compounding the problem. Gulliver is aiming for a cost/revenue ratio of 48-52%, but in the third quarter it was 63.7%, points out Reuters. Gulliver absolutely intends to reach his cost target by the end of 2013 and has indicated that more redundancies will be necessary soon.
Elsewhere, there are big changes at Morgan Stanley. Paul Taubman the abnormally longstanding co-head of institutional securities (the investment bank), is retiring after 30 years. This will leave Colm Kelleher, until now co-president with Taubman, as the sole head of Morgan Stanley’s investment bank. Taubman and Kelleher allegedly didn’t get on.
Kelleher’s elevation could be a good thing for Morgan Stanley’s fixed income traders. They have good reason to fear for their futures as banks like UBS pull out of marginal businesses. Morgan Stanley remains a small player in fixed income sales and trading. However, Kelleher is a trader and oversaw the build-out of Morgan Stanley’s FICC business. Earlier this year he said he was very confident of achieving a 15% return on equity in FICC and that any slowdown in industry wide investment banking revenues was merely cyclical.
It’s a classic investment banking vicious cycle,” recalls one former UBS banker. “Banks hack away at their stubborn cost base, but the more they cut, the more revenue they lose, which means they have to cut even deeper.” (Financial Times)
Over the past decade, UBS has worked its way through eight investment bank chief executives (or combinations of chief executives). (Financial News)
UBS’s shares now even trade at just above the value of its tangible equity. Normally, that wouldn’t be anything to crow about, but most of the industry trades at a fraction of book value. For example, Credit Suisse is valued at 0.83 times book; Citigroup and Deutsche Bank at 0.63; Barclays at 0.53; and RBS at less than half. (Breaking Views)
Alan Johnson, Wall Street compensation overlord, still thinks bonuses will rise 0-10% for this year vs. 2011. (Wall Street Journal)
31 Goldman partners have left since February , of whom 14 were in Europe. (Bloomberg)
Local Chinese officials admit that they have not heard of any foreign bank that’s committed to coming to China’s new Manhattan. (Financial Times)
Financial News’ had a long profile on Greg Coffey, which has been pulled. (Financial News)
KBW has got a new owner. (Reuters)
James Babbs, an equities sales trader at UBS, has been suspended for betting that his horses would lose races. (The Sun)
22 year old trader in London says he’s looking for jobs in Germany and Switzerland instead. (Financial Times)
Maths phobes experience arithmetic like bodily pain. (InkFish)