HSBC fails to match Wall Street boom as investment bank profit slips

HSBC’s investment bank failed to match the sharp gains of its Wall Street rivals during the third quarter, as declining debt capital markets revenues hit overall performance in the unit.

The UK lender’s global banking and markets unit posted revenue of $3.6bn during the third quarter, a decline of 3% as fixed-income trading tumbled and its advisory unit was weighed down by slower DCM activity.

Revenues within HSBC’s capital markets and advisory unit were up by 18% to $337m during the third quarter, as stronger M&A activity helped offset declines in its larger DCM division. Meanwhile, Wall Street banks saw an average increase of 54% in their investment banking units during the same period as M&A fees hit record highs. Barclays also pulled in record fees of £971m, which was an increase of 59%.

Despite this, overall pre-tax profit at HSBC was up by 76% to $5.4bn, well ahead of the $3.8bn expected by analysts as it reversed $700m in potential loan losses and pointed to more releases before the end of the year. The UK lender is set to commence a share buyback of $2bn.

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Chief executive Noel Quinn struck a bullish tone: “While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us.”

HSBC’s global banking and markets unit has been hit by job reductions and a reduction in risk-weighted assets as the UK lender reshapes its business to focus on core units. Eventually, headcount will shrink by around 35,000 people.

Its debt trading business slipped by 46% to $164m during the third quarter, a sharper decline than most Wall Street banks. However, its equities unit — which cut staff and relocated key executives earlier this year — surged by 49% to $348m.

On a call with journalists, chief financial officer, Ewen Stevenson, said that HSBC’s investment bank performance was due to its business mix and a “significant repositioning” of its business.

“We have a bias towards fixed income and FX and away from equities and advisory. It’s the US equities and advisory that is really powering some of our US peers this year,” he said.

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Despite comparatively muted performance during the quarter, HSBC said that it was facing “performance-related pay pressures” within its global banking and markets unit and had increased bonus accrual during the third quarter by around $300m.

Investment banks are facing a battle for key talent, with some US banks increasing compensation costs to the highest in over a decade.

In the first nine months of 2021, investment banks pulled in a record $93bn in fees, according to data provider Dealogic. HSBC ranks 14th in the revenue league tables with $1.3bn so far in 2021, the same position as last year.

To contact the author of this story with feedback or news, email Paul Clarke

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