HSBC's markets business isn't usually seen as the most desirable investment bank to work for. It doesn't pay especially well and can be seen as unduly bureaucratic.
However, HSBC has its upsides. In today's interim report, HSBC described its markets business as performing 'resiliently'. Revenues across global markets were down only 3%. Miraculously, rates revenues were actually up 50% year-on-year. Equities revenues were up 56%.
Like most other banks now, HSBC is cutting costs. Over the past quarter, it made an additional 'US$0.4bn of sustainable savings' across the bank. However, unlike other banks, the markets business isn't the main focus for cost cutting. Instead, HSBC is taking costs out of its commercial banking, retail banking and technology businesses, says Chris Wheeler, an analyst and director at Mediobanca.
Where are the safest jobs in HSBC's markets business now? Wheeler points to risk and compliance, where the bank has hired 1,600 people since December 2012.
As we pointed out last week, the future looks uncertain again for investment bankers at Barclays - and especially for those working in the under-performing fixed income currencies and commodities division. The bank is engaged in deleveraging, which will particularly impact its derivatives staff. A new 'Transform 2' strategy/shakeup is set to be unveiled in February 2014.
As the tables below from Deutsche Bank analysts show, Barclays' M&A bankers and underwriting professionals have had a good year and look fairly safe. The same can't be said for its fixed income salespeople and traders, who look vulnerable. Barclays' equities salespeople and traders have also under-performed other non-UK banks and should feel a little apprehensive.
Source: Deutsche Bank
The real problem at Barclays' investment bank, however, is cost control. Another table from Deutsche Bank analysts, shown below, reflects the need for Barclays to dramatically cut compensation costs at its investment bank. CEO Antony Jenkins has promised to cut the investment bank's compensation bill, but in the third quarter, costs rose to 47% of revenues - far higher than the 40% achieved in Q3 2012. "We expect investors to demand that TRANSFORM 2 reconsider return and cost dynamics in all IB businesses," say Deutsche analysts - implying that no job at Barclays' investment bank is really safe.
Most at risk of all are jobs in the key areas of de-leveraging and the so-called 'exit quadrant' businesses, shown on page 27 of Barclays' interim report (US residential mortgages, commercial mortgages, leveraged loans, CLOs, structured credit, monoline derivatives, corporate derivatives.)
Source: Deutsche Bank
As at Barclays, investment bankers at RBS will find out their fate in February, when new CEO Ross McEwan is due to deliver the results of a strategic review of the markets division. The results will almost certainly be painful.
"If you're working in the markets division of RBS now, you should be very worried," says Wheeler. "The aim of RBS is to focus on UK corporate banking and retail, and to significantly cut risk-weighted assets."
A high proportion of RBS's risk-weighted assets are tied up in its asset-backed business, particularly its Connecticut-based old Greenwich Capital Markets business, says Wheeler. This business has no obvious synergies with the favoured UK corporate banking and retail segments, and is therefore highly likely to be cut come February.
Overall, RBS is aiming to shrink its cost ratio from 65% to mid-50%. More redundancies look inevitable, as do further pay cuts at the investment bank. The chart below, from analysts at Nomura, illustrates why RBS's global markets business is so unpopular internally: it uses 24% of the bank's risk-weighted assets and only generates a return on equity of 7.4%. The chart below that (from analysts at Investec) reflects the declining profitability of RBS's markets business over the past three years. RBS's markets bankers should probably feel very worried indeed.