HSBC's bankers confused as inflation & costs consume their savings
HSBC's decision to cut M&A and equity capital markets (ECM) bankers in the UK and Europe contributed to $300m of cost reductions at the bank in the first quarter. And yet, costs at the bank were flat year-on-year.
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HSBC said today that while $300m of "simplification savings" were achieved in Q1, $300m of costs were simultaneously added.
What were these additional expenses? HSBC's report points to the dual scourge of "inflation" and "restructuring costs." The latter include $100m spent on severance payments for bankers already let go, plus other "up front costs" associated with the restructuring and costs incurred by the disposal of businesses in Canada and Argentina.
HSBC's scything is far from over. The bank confirmed today that it intends to cut $1.5bn from its cost base on an annualized basis by the end of 2026, and that in doing so it expects to incur "severance and other up-front costs of $1.8bn over 2025 and 2026." That only $100m has been incurred so far is an indication of how much more there is to simplify. Most of the coming cuts, however, appear scheduled for next year.
Amidst the changes, HSBC's investment bankers don't appear to be performing badly. In Q1 their revenues were roughly stable year-on-year. HSBC no longer breaks out investment banking revenues by business, so it's not clear whether this was down to the debt capital markets (DCM) business, which is immune to the cuts, or to a last hurrah in M&A and ECM. Insiders at the bank suggest it's simply an accounting foible reflecting deals booked in the last quarter of 2024 and that the decline will soon become very clear.
For the moment, too, HSBC's insiders say there's still confusion over the final shape of "IB3.0" at the bank. There's reportedly been no announcement of the full structure from Adam Bagshaw, the head of the investment bank who joined from Deutsche Bank four years ago and who insiders say should have defended the division from being dismantled by people like Michael Roberts and Gerry Keefe, who arrived more recently from Citi and are commercial bankers at heart.
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