HSBC to exit parts of investment banking business in UK, US and Europe

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HSBC will shut key parts of its investment banking business in the UK, Europe and the Americas as part of chief executive Georges Elhedery’s plan to overhaul its operations.

Europe’s biggest lender will close its mergers and acquisitions advisory and its equity capital markets businesses outside Asia and the Middle East, the bank said in a memo on Tuesday.

The units “really don’t have scale”, said a person with knowledge of the decision. “It was just a very tough job to build up to a level where [HSBC] has a competitive edge.” Continuing to try to “break in” to those markets would not be the best use of the bank’s resources, they said.

HSBC will keep its debt capital markets, leveraged finance, real asset finance and infrastructure finance businesses in those markets, the person said, as those units have greater scale.

The decision underscores how small investment banking is as a portion of HSBC’s business. Globally, investment banking accounted for just 6 per cent of HSBC’s total revenues in the first half of last year, according to the bank’s interim report. Investment banking revenues for the period were down 3 per cent from a year earlier. 

In a statement, the bank said the move was part of its “ongoing efforts to simplify HSBC and increase leadership in our areas of strength”.

It would keep “more focused” M&A and equity capital markets capabilities in Asia and the Middle East, it said. Exiting the businesses in the UK, Europe and the US would be “subject to local legal requirements”, it added.

“No one knew at all [that this decision was coming] . . . a lot of people are in shock,” said one UK-based HSBC banker.

Two people with knowledge of the matter said some questions had started to be raised internally when there was no sign of an initial agreement on the size of the bonus pool for investment bankers in mid-January. Still, one of the people said, bankers felt blindsided by the announcement.

The move, first reported by Bloomberg, comes as Elhedery, who replaced Noel Quinn as chief executive last year, oversees a wide-ranging restructuring that splits the bank into “eastern” and “western” units. The overhaul will merge HSBC’s commercial bank with its global banking and markets business, which includes investment banking.

The restructuring is also targeting cost cuts by reducing the bank’s expensive layer of senior staff. The head of HSBC’s global private banking and wealth business, Annabel Spring, has left, as has its group sustainability officer Celine Herweijer.

HSBC has benefited hugely from a period of higher interest rates but is preparing for the prospect that falling rates will hit its profits. The bank is also preparing to bring in a new chair as Mark Tucker’s nine-year term limit approaches.

Last week the bank said it was shutting Zing, the payments app it launched last year in an effort to compete with digital rivals.

Additional reporting by Ivan Levingston in London