When you think of top trading houses, you probably don't think of HSBC. The London-based bank doesn't have a reputation as an especially great payer (especially at junior levels), and it ranks well outside the top five banks for fixed income and equities trading globally. And yet, HSBC's traders persistently outperform the market - and have just done so again.
The charts below illustrate the HSBC trading phenomenon. Last year, fixed income trading revenues at HSBC rose 13% - more than anywhere else except UBS, and on a par with Morgan Stanley. Similarly, revenues in HSBC's equities business rose 43% - more than anywhere else but Goldman Sachs.
Within fixed income, HSBC's credit trading business did particularly well last year. While every other bank complained of weak credit revenues in 2015, HSBC's credit traders increased revenues by 24%. HSBC's rates traders increased revenues by 15% and its FX traders increased revenues by 7%.
HSBC's outperformance reflects the fact that its trading business is not like the rest. As Chirantan Barua, banking analyst at Sanford Bernstein, pointed out last year, HSBC's global banking and markets business is fundamentally a huge conduit for liquidity across the bank as a whole and for trading FX on the back of the bank's own trade flows. Whereas other banks are all about customer accounts, Barua suggests that HSBC's trading business is more about the bank's need to manage its own enormous balance sheet.
Whether they're client-focused or not, HSBC's top traders appear to be handsomely paid for their efforts. Although HSBC's most senior staff have had their pension allowances cut, today's remuneration report shows that aggregate spending on pay in HSBC's global banking and markets business rose by 8% last year. The bank says "higher performance-related costs" were to blame, along with "wage inflation". There are now 74 people at HSBC who are not senior management and who earn more than €2m (£1.6m, $2.2m) a year, compared to 47 a year ago.
Who are the mysterious high earners at HSBC? We don't know for sure. The management team at GB&M are undoubtedly well paid, but may be categorized as senior management for reporting purposes. Below them, HSBC in London has a well-established cadre of senior traders and salespeople who've been with the bank for two decades or more. Think names like Frederic Boillereau, global head of Foreign Exchange & Commodities and global head of corporate sales, or Tim Coffey, global head of wholesale portfolio management, or Asif Godall, global head of traded credit at HSBC Global Banking and Markets, or Mehmet Mazi, global head of traded credit at HSBC as a whole, or Karl Von Buren, global head of equity finance and delta one, or Patrick George, global head of equities...
It's not all good at HSBC's investment bank though. The bank is still making cuts and Stuart Gulliver said today that if 2015 continues as it's begun he may take out additional costs in the second half. Buried deep within HSBC's remuneration report is also something about some regulated staff at HSBC now having their bonuses deferred for seven years instead of three, and Gulliver has had a pay cut after being too slow to implement measures to tackle financial crime. No one should feel too sorry for Gulliver, however: he's still earning £7.3m ($10.3m), and his car allowance alone was £87k last year. Who said HSBC is lacking in generosity?