First Deutsche Bank. Then Citi and Barclays. Now HSBC. The second and third quarters of 2019 are turning into months of big job cuts at major banks, spurred by slowing revenues in sales and trading.
HSBC, which today announced its second quarter results, the ousting of its chief executive and 4,000 layoffs in the months to come, seems to have fallen foul of the shrinking revenue and profit disease. Not all of HSBC's cuts will come from its global and banking market division, which already announced "hundreds" of cuts in GB&M earlier this year, but it's safe to presume that many will. - Profits fell 44% at the division in the second quarter, and sales and trading revenues were down 15%.
HSBC CFO Ewen Stevenson said today that the bank will be focusing its cull on senior staff. This will be welcome news to some juniors at the bank, who have long argued that HSBC's managerial staff are both overpaid and under-effective.
As we noted in February, HSBC's material risk takers (senior managers and people who take significant risk on behalf of the bank) are well-rewarded for an institution that has a reputation for paying below the market average to staff at lower levels. In 2018, the average of HSBC's 1,181 material risk takers earned $1.1m. In the investment bank (GB&M), the average of its 628 material risk takers earned $1.2m.
This isn't the first time HSBC has tried culling some of its high earners. - After the financial crisis, the bank implemented a restructuring programme with the aim of ensuring that no one at the firm was more than six layers of management from the CEO. Today's announcement is an admission that it's still too top heavy.
Insiders would agree. "There are too many middle managers who are of a poor standard at HSBC," says one junior banker. "I joined from a U.S. bank and when I compared like-for-like, it seemed the equivalent staff at HSBC were far less competent," he adds.
As HSBC extracts headcount, insiders say that whoever replaces Flint as CEO will need to ensure that redundancies are made fairly. Staff let go earlier this year from the bank complain that selection for redundancy was based on internal politics and that cliques of senior management looked after themselves and their "favourites" rather than making decisions based on objective performance.
"My boss took away my work and re-distributed it to three of her favourites," complains one U.S. risk manager. Another, UK-based junior said his head of department stayed, "even after accruing a $13mn operational loss." HSBC's generous pension plan creates little incentive for senior staff to move on, he suggests.
HSBC declined to comment on the coming layoffs, which will equate to 2% of its total headcount while reducing 4% of its wage bill (suggesting that anyone earning twice the bank's average is at risk).
Laid-off staff will always have gripes, but it could aso be that the next round of redundancies will be less politicized than the last - Bloomberg says HSBC's chairman Mark Tucker is keen to make decisions based upon hard data. Under-performing senior staff at the bank could find their days are numbered.
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