By Sinead Cruise, Lawrence White and Selena Li
LONDON/HONG KONG (Reuters) – Investors in HSBC are backing management attempts to shutter parts of its investment bank, even as U.S. President Donald Trump’s deregulatory agenda fuels hopes for a boom in capital markets activity.
Four shareholders, including two of the 20 largest, said last month’s decision to axe HSBC’s mergers and equity capital markets teams in the Americas and Europe made sense as the bank focuses on its strongest franchises in its core Asian markets.
Once a sprawling behemoth spanning more than 100 countries, HSBC has spent the last decade slowly shrinking its global footprint and exiting low-return businesses.
As U.S. tariffs threaten to crimp the earnings power of major trade finance providers like HSBC, pressure is mounting on CEO Georges Elhedery to shift group capital into Asian economies with healthy regional trading prospects that may be less vulnerable to global trade snags, the investors said.
“Geopolitics are making life more difficult for lots of businesses that operate globally,” said Alex Potter, investment director for European equities at HSBC shareholder abrdn, a top-30 investor.
“Even with multiple purchases over decades, almost no foreign banks have achieved meaningful market share in U.S. equity investment banking,” he added.
Elhedery is set to unveil further details of his vision for HSBC when it reports full-year results on February 19, including cost savings from his restructuring, one bank insider said.
Unconfirmed media reports put those savings at between 1.2 billion and 3 billion pounds ($1.5-$3.8 billion), partly achieved through further cuts to management roles and units close to those already scrapped, a second bank insider said.
The bank’s London-listed shares are up 11.5% year-to-date, after rising by a fifth in 2024.
Sajeer Ahmed, global equities portfolio manager at HSBC investor Aegon Asset Management, said he felt bosses were meticulously analysing each business, with a view to delivering a sustainable return on tangible equity (ROTE) of around 16%.
“Many U.S. banks with a similar return profile are trading at a significantly higher price-to-book multiple,” he told Reuters.
For example, HSBC, with a 19.3% ROTE in the first 9 months of 2024, traded at a multiple of 1.04 on Friday, less than half the 2.16 for Morgan Stanley which returned 18.8% last year.
“The sharp switch to profitability from empire building is Elhedery’s attempt to tackle that valuation differential over time,” Ahmed said.
A forecast compiled by the bank shows analysts expect full-year profit of $31.6 billion, little changed after a 78% jump to $30.3 billion in 2023.
INTERNAL STRIFE
There are reasons for Elhedery to move quickly.
The optics of ousting rainmakers and IPO advisors could be harder to manage as 2025 unfolds, with Amrit Shahani, a partner at consulting firm BCG Expand, saying such teams are expected to enjoy double-digit growth on the back of Trump-fuelled deregulation and consolidation this year.
Staff in affected businesses are concerned about their jobs, while those in related divisions fear they may be next, denting morale, two more sources at the bank said.
Meanwhile, a company executive, who declined to be named as discussions are private, said the bank’s wealth management business in China is “bracing for uncertainty” with decisions pending on operational changes.
Sources told Reuters in November that HSBC plans to scale down its digital wealth project Pinnacle and credit card business in China, underscoring the challenges it faces in growing its footprint in the country.
HSBC declined to comment.
“I don’t think this is about having to make a difficult choice between serving China versus serving the West,” said Alex Marshall, managing partner at strategic growth consultancy CIL.
“Asian capital is a significant growth story. This is a huge prize, and HSBC has done well out of it. Europe’s share of global capital flows by contrast is pretty limp.”
(1 British pound = $1.2555)
(Additional reporting by Lananh Nyguyen in New York and Amy Jo Crowley in London; Editing by Kirsten Donovan)
