2018 was an annus horribilis for HSBC's investment bank. The head of global markets left after allegations of harassment. 10 senior bankers quit in five months. The head of UK investment banking, Philip Noblet, escaped to Jefferies. And someone leaked an anonymous internal memo complaining that the investment banking strategy had "utterly failed" and performance was "really appalling." Throughout, the bank kept attracting new people. Now, we have an idea why.
The latest HSBC annual report reveals that the bank paid some impressive guaranteed bonuses to get people on board in 2018. Last year, the bank awarded $20.1m in guaranteed bonuses and sign-on payments to 22 people joining its investment bank. This was up from $11.4m in sign-on bonuses paid to 17 beneficiaries in 2017.
Who were the recipients of last year's generosity? HSBC doesn't say. However, it's possible to make an educated guess. Last year, for example, HSBC hired Greg Guyett from JPMorgan as co-head of its investment bank, Peter Enns from Goldman Sachs as head of its London FIG group, plus the likes of Christian Hepp from Jones Lang LaSalle, Giulio Hoffmann from Macquarie, and Nikolay Iankov from BAML.
By May, a spokeperson told Reuters the bank had already hired 'dozens' of senior bankers, predominantly in the U.S. and Asia. They clearly came at a price.
HSBC's existing investment bank staff also didn't do badly last year. Profit in the global banking and markets division (HSBC's investment bank) rose nearly 5% last year to $6bn. Average pay per head for the material risk takers (MRTs) in global banking and markets was $1.23m for 2018, up from $1.22m a year earlier. Across the bank, 20 people earned more than $2m, up from 18 in 2018.
Nonetheless, there were also signs of pain. Forty nine material risk takers in global banking and markets disappeared in 2018, a drop of 7%. Foreign exchange excepted, revenues fell in all key sales and trading business lines - although they were up in the beleaguered banking division (see the chart below). Chief executive John Flint said today that markets revenues "collapsed" in the fourth quarter. And earlier this month, the bank was said to be laying off dozens of people in its global markets division as it attempted to curtail costs.
Despite it all, the global banking and markets division turned in a passable return on target equity of 10.5% last year and HSBC is still hiring. As we reported yesterday, it's just brought on Jeremy Hughes, the former head of European leveraged credit at Barclays. Additional recrutment is an inevitablity. If HSBC comes knocking at your door this year, you might want to hold out for some of the generous guarantees it's been known to pay in the past.
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