HSBC is not known for being a big payer, and yet this morning's results show its its traders outgunning all rivals, both in the third quarter and during the first nine months of 2017.
The charts below reflect the reality. In fixed income trading, HSBC is the best performing bank. In equities trading, HSBC is the best performing bank too. Nor is this just a passing phenomenon: HSBC's trading businesses outperformed in the three months to October and the nine months from September. When it comes to growing trading revenues, HSBC is cleaning up in a way that European rivals like Barclays and Deutsche can only dream of.
Thanks to this out-performance, HSBC is now the biggest European bank in terms of fixed income trading revenues. After double-digit reductions in their own fixed income revenues last quarter, Deutsche Bank and Barclays now rank in second and third place respectively.
As Deutsche Bank wrestles with its promise to increase pay in its investment bank this year, Deutsche CEO John Cryan might therefore want to ponder HSBC's success. In particular, Cryan might want to consider HSBC's ability to grow its sales and trading market share despite a reputation for being a mediocre payer.
In fact, this reputation may not be entirely justified. HSBC pays its top traders well: last year, the average material risk taker (MRT) globally at HSBC earned $879k (£666k), while the average material risk taker in Deutsche's global markets business earned just €562k ($654k). This is partly because Deutsche includes everyone at VP level and above in its MRT list and HSBC doesn't, but HSBC is still generous where it matters. And despite this generosity, it keeps spending to a minimum: costs consumed only 58% of revenues at HSBC's global banking and markets division in the first nine months of this year, compared to 84% at Deutsche Bank.
What's HSBC doing right? The answer may well be: squeezing everyone except for its favourites. HSBC said today that 75% of its global operations staff are now in low cost locations (up from 57% in January 2015). HSBC insiders tell us that the bank is still very "top heavy", despite rounds of senior redundancies, and that junior and mid-ranking staff there feel underpaid while senior staff seem to be getting all the rewards. As of last year, HSBC has a stated policy of skewing pay towards its highest performers.
HSBC's generosity to its top staff is reflected by the fact that 53 people outside senior management there earned more than €2m last year. At Deutsche Bank, 71 did - but because 220 people at Deutsche Bank earned more than €2m in 2015, last year's payouts caused outrage. In fact, HSBC's success suggests that Deutsche might want to adopt a more targeted approach to high pay long term. With electronic trading systems now doing the heavy lifting, there's less need to have hundreds of highly paid traders than there used to be. All you need is a small, highly remunerated elite. Just ask HSBC - or look at its trading results.
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