HSBC's first quarter results were out this morning. If you work for the bank's Global Banking & Markets (GB&M) division, they didn't paint an entirely pretty picture: sales and trading revenues were down nearly 10% compared to the first quarter of 2018; profits across the division were down 13%.
However, it wasn't entirely bad either. Unlike many banks, HSBC splits out its fixed income sales and trading results into FX, rates, and credit - providing an insight into the performance of each division. As the chart below shows, it was the credit desks that scuppered fixed income trading for HSBC in the first quarter. HSBC's rates desks, by comparison, were fine.
HSBC's rates traders weren't alone in having a tolerably good quarter. Barclays and UBS also said their rates traders out-performed in Q1, and BNP Paribas' macro traders (rates and FX combined) had an exceptional few months.
But HSBC's results today are also a reminder that however well its traders perform, they will almost certainly be paid a lower proportion of their earnings than traders at other banks. Just 26% of revenues at HSBC global banking and markets division were directed towards compensation in the first quarter.
This is low. In the 'good old days' before the financial crisis, banks would dedicate 50% of revenues to paying their employees. Few banks do this any more, but most dedicate more than 26%. In Morgan Stanley's institutional securities division, for example, 35% of revenues went to paying staff in the first quarter. At Deutsche Bank's corporate and investment bank, 29% were. HSBC brings up the rear.
This isn't to say that HSBC's traders are paid badly. In 2018, the average material risk taker at the bank earned $1.23m. It is to say, though, that a $ of pnl earned by traders at HSBC will probably generate less pay than a similar $ at other banks. This is fair enough - more of HSBC traders' success is based on flow related to corporate clients than to their own skill, but it's something that HSBC's traders might want to bear in mind as the bank looks to cut costs, and maybe to squeeze pay further still.
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