HSBC plans biggest investment banking retrenchment in decades

By Sinead Cruise

LONDON (Reuters) -HSBC plans to wind down its M&A and some equities businesses in Europe and the Americas, the bank said on Tuesday, accelerating a shift to Asia in its biggest retrenchment from investment banking in decades.

"Our intention is to move to a more competitive, scalable, financing-led model," Michael Roberts, CEO HSBC Bank said in a memo sent to staff seen by Reuters, which said the lender would retain more focused M&A and equity capital markets capabilities in Asia and the Middle East.

A spokesperson for the UK-headquartered bank, which employs around 220,000 people globally, confirmed the contents of the memo.

Since the global financial crisis, HSBC has been scaling back its worldwide footprint, starting with exiting dozens of low-returning consumer banking activities, from France to Greece to Canada.

Under CEO Georges Elhedery, who replaced Noel Quinn in September, HSBC is now overhauling its dealmaking and corporate advisory activities in the West in a bid to boost returns and tighten its focus on Asia, where the lender already earns the bulk of its profit.

HSBC ranked 14th globally in investment banking fees in 2024, according to LSEG data, down a notch from the previous year. The bank's market share in the fees pot reached 1.5%, mostly thanks to the revenues from its debt financing business, the data show.

It's unclear how many roles will be cut as a result of Tuesday's surprise announcement, nor the likely savings, nor how many bankers might be redeployed to other financing businesses where HSBC considers it is better able to compete with U.S. rivals that have dominated investment banking's most lucrative segments for years.

Analysts have been questioning where Elhedery could achieve savings while the bank remained a global, full-service wholesale lender.

HSBC will keep its debt capital markets and leveraged acquisition finance operations globally, Roberts told staff in the memo, which acknowledged how "unsettling" the news would be for bankers who advise on dealmaking and corporate equity raising, such as through initial public offerings.

News of the plan on the eve of China's Lunar New Year, has sent shockwaves round the lender.

One senior banker, who spoke on condition of anonymity, questioned the rationale of the restructuring, and how the bank would support its debt financing activities without the M&A advisory capabilities.

But some analysts and former insiders praised HSBC management for bowing out of businesses where it had struggled to thrive.

"I've lost count of the number of times HSBC has been in and out of ECM in the UK. It never seems to succeed," Shore Capital analyst Gary Greenwood said. 

"At the end of the day, these are expensive businesses to run and if you are not winning the business and generating the fees then it's easy to lose money."

HSBC shares were little changed after the news, down 0.2% to 822 pence at 1146 GMT, valuing the bank at about 147 billion pounds ($183 billion).

In recent years, other European banks have made similar attempts to scale back global investment banking activities to focus on core markets where they are stronger; Germany's Deutsche Bank (ETR:DBKGn) pulled out of equities while Switzerland's UBS has retrenched from some trading businesses.

Some commentators were surprised by the timing of HSBC's decision, given capital markets activity is expected to grow in the near term, fuelled by expectations of interest rate cuts and pro-growth policymaking across the West in the wake of U.S. President Donald Trump's return to power.

"The bank is being run with medium to long-term view," RBC Capital Markets analyst Ben Toms told Reuters.

"Geographically, the move reflects the continued shift from West to East, where growth and profitability are higher."

HSBC's decision to shutter the businesses was earlier reported by Bloomberg.

($1 = 0.8037 pounds)