Market share: People along the streets of Hong Kong. Pressure is mounting on Elhedery to shift group capital into Asian economies with healthy regional trading prospects and which shareholders say makes sense. — AFP
LONDON: Investors in HSBC are backing management attempts to shutter parts of its investment bank, even as US President Donald Trump’s deregulatory agenda fuels hopes for a boom in capital markets activity.
Four shareholders, including two of the 20 largest, said last month’s decision to axe HSBC’s mergers and equity capital markets teams in the Americas and Europe made sense as the bank focuses on its strongest franchises in its core Asian markets.
Once a sprawling behemoth spanning more than 100 countries, HSBC has spent the last decade slowly shrinking its global footprint and exiting low-return businesses.
As US tariffs threaten to crimp the earnings power of major trade finance providers like HSBC, pressure is mounting on chief executive officer George Elhedery to shift group capital into Asian economies with healthy regional trading prospects that may be less vulnerable to global trade snags, the investors said.
“Geopolitics are making life more difficult for lots of businesses that operate globally,” said Alex Potter, investment director for European equities at HSBC shareholder abrdn, a top-30 investor.
“Even with multiple purchases over decades, almost no foreign banks have achieved meaningful market share in US equity investment banking,” he added.
Elhedery is set to unveil further details of his vision for HSBC when it reports full-year results on Feb 21, including cost savings from his restructuring, one bank insider said.
Unconfirmed media reports put those savings at between US$1.5bil and US$3.8bil, partly achieved through further cuts to management roles and units close to those already scrapped, a second bank insider said. HSBC declined to comment.
The bank’s London-listed shares are up 11.5% year-to-date, after rising by a fifth in 2024.
Sajeer Ahmed, global equities portfolio manager at HSBC investor Aegon Asset Management, said he felt bosses were meticulously analysing each business, with a view to delivering a sustainable return on tangible equity (ROTE) of around 16%.
“Many US banks with a similar return profile are trading at a significantly higher price-to-book multiple,” he said.
For example, HSBC, with a 19.3% ROTE in the first nine months of 2024, traded at a multiple of 1.04 last Friday, less than half the 2.16 for Morgan Stanley, which returned 18.8% last year.
“The sharp switch to profitability from empire building is Elhedery’s attempt to tackle that valuation differential over time,” Ahmed said.
A forecast complied by the bank showed analysts expect full-year profit of US$31.6bil, little changed after a 78% jump to US$30.3bil in 2023.
There are reasons for Elhedery to move quickly.
The optics of ousting rainmakers and initial public offering advisors could be harder to manage as 2025 unfolds, with Amrit Shahani, a partner at consulting firm BCG Expand, saying such teams are expected to enjoy double-digit growth on the back of Trump-fuelled deregulation and consolidation this year.
Staff in affected businesses are concerned about their jobs, while those in related divisions fear they may be next, denting morale, two more sources at the bank said.
“I don’t think this is about having to make a difficult choice between serving China versus serving the West,” said Alex Marshall, managing partner at strategic growth consultancy CIL.
“Asian capital is a significant growth story. This is a huge prize, and HSBC has done well out of it. Europe’s share of global capital flows by contrast is pretty limp.” — Reuters
