HSBC still has plenty of costs to cut. As per its giant cost-cutting plan announced in February 2020, HSBC wants to achieve cost savings of between $5bn and $5.5bn between 2020 and 2022, but it's only generated $2bn of these so far. This isn't preventing the bank from increasing bonuses for the bankers and traders in its global banking and markets (GB&M) business.
In its second quarter results, released today, HSBC says it increased global bonus accruals in GB&M by $300m in the first half of the year compared to the same period of 2020. Around $100m of this seems to have gone to bankers and traders in London, where HSBC spent 37% more on compensation than last year. By comparison, spending on pay for their colleagues in Hong Kong rose 17%. In America, it fell.
HSBC's generosity to its London-based bankers and traders comes as the bank is pivoting its business towards Asia. Risk weighted assets at HSBC's Asian GB&M business rose 6% year-on-year in the first half, even as they fell 17% in the rest of the world.
The bank said today that it achieved $184m of cost savings in its GB&M business globally in the first half. However, costs in the business actually rose 4% due to a combination of higher spending on bonuses and higher spending on technology.
Bankers and traders in HSBC's non-ringfenced GB&M division made a profit of $128m in the second quarter, compared to a loss of $587m in the second quarter of 2020. Across Asia, profits fell 27% to $811m.
HSBC's equities traders were the standout performers of the quarter. Equities revenues increased by more than 100% year-on-year to $223m, driven by what HSBC described as, "a strong performance in structured derivatives in equities, reflecting strong client activity in Wealth, particularly in Asia." By comparison, revenues in global debt markets fell 59% and HSBC's FX trading revenues were down 34%. Capital markets and advisory revenues were down 18% year-on-year in the quarter as lower investment grade underwriting fees dragged down a stronger performance in advisory and leveraged finance.
HSBC's generosity to its bankers and traders seems slightly surprising in the circumstances. Pay may be rising, but global profits in GB&M are falling: they went from $3.6bn in the first half of last year to $3bn in the first half of this year. However, HSBC clearly feels it can - or needs - to be generous. It probably helps that the return on tangible equity in GB&M rose to nearly 10.7% (up from 7.7%) after risk weighted assets were trimmed. Rising pay may also reflect a need to keep employees onside during the restructuring: an internal survey revealed that all HSBC employees globally are feeling more fatigued and anxious than normal this year.
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