LONDON (Reuters) - To make a quick mark on Europe’s biggest bank, HSBC’s caretaker boss Noel Quinn needs to succeed where other executives have failed: in its sprawling investment bank where a struggle to gain market share against Wall Street rivals continues.
But the commercial banking chief - hand-picked to steady the Asia-focused lender after the sudden ousting of John Flint on Monday - will find a business hampered by internal factions and sliding morale.
A swift turnaround at HSBC’s investment bank - the Global Banking & Markets (GBM) business run by Samir Assaf - would reassure investors and could spare Chairman Mark Tucker the task of finding someone else to fill one of banking’s toughest roles, investor and HSBC insider sources said.
“HSBC’s culture is not that easy to shift and it seems clear Mark [Tucker] is intent on that. Lean and focused is certainly good as indeed are quick wins,” said Hugh Young, managing director at shareholder Aberdeen Asset Management Asia (SLA.L), identifying GBM as one of bank’s simpler targets for change.
Three other investors contacted by Reuters, who declined to be named, also said the investment bank should be Quinn’s near-term priority.
HSBC declined to comment.
GBM generated 22.6% of group profits in the first half but also accounted for 29.6% of expenses. Quinn’s commercial banking division, by contrast, made up 32.1% of profits while retail banking and wealth management accounted for 35.5%, highlighting GBM as one of the bank’s biggest underperformers.
Returns in HSBC’s U.S. operations and a slow-going push into China’s Pearl River Delta (PRD) have also drawn criticism but investors contacted by Reuters said they accepted that these were core to the bank’s long-term fortunes and flaws could not be addressed overnight.
Tackling the investment bank, however, is a more achievable task for an interim chief, who is described by Tucker as ambitious and decisive, and could feed through to the bottom line at a faster pace.
“It’s darned difficult for quick wins either in the U.S. or in PRD,” Aberdeen’s Young said.
HSBC’s GBM business, largely based out of London, spans investment banking and corporate finance, including M&A, stock market listings, bond, equity and loan issuance and also trading, trade finance and cash management.
HSBC on Monday said it would cut around 2% of its workforce or around 4,000 jobs this year to rein in costs.
One source familiar with the bank’s thinking said the bulk of cuts would fall in GBM, where revenue growth is expected to cool on the back of fewer deals and tighter loan growth in China and Hong Kong.
HSBC has upped its market share for M&A and equities deals by 2.8% and 0.7% respectively so far this year, rising 21 and 4 places respectively to number 17 and number 13 in the rankings.
But market share has slipped by 0.5% in bonds and 0.2% in loans over the same period, in the only two areas where it commands top-10 positions, the data shows, highlighting the scale of Quinn’s challenge.
Among the world’s top dozen investment banks, HSBC in 2018 ranked in the top three for revenues earned in only two product groups out of 14 tracked by industry analytics firm Coalition, namely G10 foreign exchange and emerging markets macro products.
U.S. rivals JPMorgan, Goldman Sachs and Citi ranked in the top tier for 14, 8 and 8 such products respectively.
Before mounting a serious challenge to rivals, Quinn needs to neutralize some influential factions within GBM, and link it more closely with other parts of the bank, something his predecessors struggled to achieve, HSBC sources said.
Frequent job culls and leadership changes since the 2008 financial crisis have opened up divisions between different parts of the business and also between bosses and staff.
“None of us really know who Quinn is. People were looking him up [on Monday],” one GBM trader told Reuters.
“We are so far removed from each other. At my previous bank, I knew everyone up the chain, at least by name and title. Here I haven’t the foggiest. They sit in their ivory towers,” the trader said.
HSBC has broken with tradition in recent years and headhunted external candidates to manage the investment banking division of GBM, to reinvigorate what some analysts describe as a bureaucratic and insular culture.
Former Goldman Sachs (GS.N) banker Matthew Westerman was the first such hire but he left in November 2017 after two years marked by sweeping job cuts and a crackdown on colleagues who did not spend enough time meeting clients.
Robin Phillips, one half of the duo who replaced Westerman, handed over sole control of that business to former JP Morgan executive Greg Guyett in February, just months after colleagues circulated a memo accusing Phillips of overseeing “persistent failure” in the unit.
Guyett put his own stamp on the banking division with the latest reshuffle of senior roles in April.
One former U.S. based employee, who left the bank a few months ago, described low morale and staff retention as serious problems because HSBC was seen by some as “the loser bank to work for”, due to performance and past reputation issues.
“Employees expressed that they wanted better technology and better benefits but investments in the business or the workforce never followed,” the ex-employee said.
Additional reporting by Lawrence White in London, Sumeet Chatterjee in Hong Kong and Imani Moise in New York. Editing by Jane Merriman