If you work anywhere in investment banking, you should familiarise yourself with Stuart Gulliver’s vision of the future

eFC logo

Today is HSBC investor day. Stuart Gulliver made a presentation. So did Sean O’Sullivan (COO) and so did Ian McKay (CFO).

You may think HSBC is no massive deal in investment banking. But this would be wrong. In the first quarter, net revenues in the investment bank were $5.6bn, versus $8bn at Citi, and $4.7bn at Bank of America. Moreover, HSBC is well-placed in the growth markets of Asia Pac.

Here’s our summary of Stuart and Sean’s presentations (Ian’s being less interesting). Take note. Attempt to position yourself appropriately.

1.  Actually, growth in investment banking in Asia Pac has been huge

We’ve been guilty on occasion of denigrating the potential for investment banking revenue growth in Asia. Credit Suisse achieve a 5% year on year drop in its Asian revenues in the first quarter. Goldman Sachs thinks near term growth potential is higher in Europe. 

However, HSBC shows the potential of Asia if you get it right. In the first quarter, revenues in its investment bank were up 20% in Hong Kong and 17% in the rest of Asia Pac. It also did well in Latin America, where they were up 22%.

2.   At universal banks like HSBC, the future is all about integrating corporate and investment banking businesses

Other banks are doing this already: Citigroup and Bank of America have been working hard to make their investment bankers and their corporate bankers work together and to share clients. It’s a strategy that’s not always popular, particularly with investment bankers who like to consider themselves superior.

However, HSBC today outlined the big gains from getting integration right: it now expects to generate an additional $2bn in revenues from integrating its businesses more closely- up from $1bn previously. “It’s as simple as things like ensuring foreign-exchange deals are done at our end in trade finance rather than at another bank’s end,” Gulliver said today.

Last year, Gulliver said HSBC generated an additional $500m in global banking and markets revenues from ‘collaborative client engagement,’ divided according to the chart below.  If you work in a corporate finance team in a universal bank the implication is clear: your clients are not your clients alone and must be proactively shared with your corporate banking colleagues. This trend has been around for some time, but is becoming more pronounced.

3.   Organisational complexity is being taken out: teams are bigger and there are fewer layers of management

We’ve written about this before, but to reiterate: HSBC is cutting middle management. It’s also increasing the number of reports per manager.

Sean O’Sullivan’s presentation outlines the espousal of the 8x8 principal: HSBC is reducing its 15 current layers of management to 8; it’s also increasing its average number of managerial reports from 5.8 to 8.

If you want to survive as a manager in a large firm, you need a sizeable team and to be no more than 8 levels of management from the CEO.

4. Growth markets in Europe are France, Italy, Switzerland, Germany and Turkey – not Russia

Surprisingly perhaps, given Bank of America’s focus on Russia and the potential for earning big fees from Putin’s privatisation push, HSBC doesn’t see Russia as a big growth market. Instead, it pulled out of Russian retail banking last year. Although HSBC is still active in Russia, it’s not seen as a growth market. Turkey is.

5.  14% of HSBC’s investment banking revenues appear unsustainable

Taking the return on equity chart produced by McKinsey last year, Gulliver’s presentation highlighted the fact that 14% of HSBC’s revenues are drawn from businesses that will be, ‘challenged’ under Basel III. Predictably, these are structured rates and structured credit, neither of which look like good places to be in the coming regulatory environment.

6.   HSBC is making big redundancies – especially in IT 

Earlier this week, we noted that banks’ heads of recruitment seemed optimistic about IT recruitment  - one said 70% of its current UK vacancies were for IT professionals.

This doesn’t appear to be the case at HSBC.

O’Sullivan said today that the bank plans to reduce IT expenditure as a percentage of the total from 14% to 12%.

Overall, HSBC has made 14,000 redundancies over the past 12 months, 3,300 of which have been in IT and 1,800 of which have been IT contracts. Offshoring has increased from 44% to 48%.  If you’re at HSBC, IT in finance is not a stable career.