HSBC likes to hire from Goldman Sachs. The head of HSBC's global banking division is Matthew Westerman, a 16 year Goldman veteran. Since arriving in February 2016, Westerman has been reshaping HSBC in the style of his former employer and has hired-in fellow ex-Goldmanites like Rob Ritchie, the ex-GS head of European corporate debt capital markets as co-head of global banking in the UK. Barclays, on the other hand, likes to hire from J.P. Morgan. Its CEO is Jes Staley, the former J.P. Morgan banker who was once mooted as a successor to Jamie Dimon. The head of Barclays' investment bank is Tim Throsby, the architect of JPM's equities recovery. Together, Staley and Throsby have hired all sorts of people from J.P.M to work with them Barclays.
If HSBC has become a proxy for Goldman Sachs and Barclays has become a proxy for J.P. Morgan, which is best? On balance, it seems to be the new-look Goldman Sacs-style HSBC.
As the chart below shows, HSBC significantly outperformed Barclays in both equities and macro trading in the first half of this year compared to last. The two banks were neck and neck in credit trading, but Barclays outperformed HSBC in global banking (a combination of M&A, ECM and DCM). If you're a trader, therefore your best bet looks like HSBC. If you're investment banker, maybe it's Barclays.
Overall, HSBCs investment bank isn't just ahead in terms of revenues though. While Barclays bumped up profits in its investment bank 6.5% year-on-year in the first half, HSBC achieved pre-tax profit growth of 33%. And while returns at Barclays' corporate and investment bank are still below 10% cost of capital, HSBC's global banking and markets division seems kinder to shareholders. HSBC doesn't break out RoE in global banking and markets, but it says returns on risk weighted assets* in the division were 2.3% in the first half. At Barclays, the comparable figure looks like less than 1%.
Of course, the comparative performance of the two UK banks can't be entirely attributed to the U.S. banks from which they've drawn their newish leaders. Barclays has entrenched problems with its equities business and HSBC's tiny equities revenues are famously volatile. Arguably neither bank much resembles Goldman Sachs or J.P. Morgan anyway. - Deutsche Bank's analysts say both HSBC and Barclays are a closer fit to Citi in fixed income trading and BofA in equities. Even so, Westerman can feel pleased. Throsby, less so.
*Defined as adjusted profit before tax and reported average risk-weighted assets at constant currency adjusted for the effects of significant items.
Photo credit: Plastic Toy Soldiers Experiment: Dueling Generals by Mike O'Dowd is licensed under CC BY 2.0.