HSBC's equities business looks weak after cutting staff in London
In 2019, when Deutsche Bank cut much of its equities sales and trading business, there were predictions that HSBC would be next in line. Like Deutsche, HSBC was a bit player in equities. And also like Deutsche, HSBC was playing in a world where the market leaders with the highest technology spend were winning market share.
Four years later, the big spenders are even more dominant, but HSBC is still in the game. When HSBC announced its big restructuring plan in February 2020, the equities sales and trading unit was spared complete closure. The bank did, however, reduce sales and research coverage in European cash equities. And in February 2021, HSBC's London equities staff were cut again, and some were shifted to Hong Kong.
However, HSBC's equities business sales and trading business still doesn't look entirely healthy. Witness the chart below, based on today's first quarter results from the bank. Equities sales and trading revenues fell around 65% year-on-year in the first quarter.
What caused HSBC's equities sales and trading revenues to plummet more than the rest? The bank today blamed, "reduced volatility which resulted in lower client volumes, largely in derivatives," and said its fall in revenues was partly by comparison with, "a strong 1Q22."
This may be the case, but as the chart below shows, HSBC's Q1 equities revenues weren't that abnormally high in the first quarter of 2022. It's more that the most recent quarter's revenues were abnormally low.
So what does this mean for people in HSBC's equities business now? In the short term, hopefully nothing at all. The global banking and markets (GBM) business at HSBC that houses the equities traders also houses payments professionals in transaction banking, and the payment team's excellent first quarter means that GBM profits were up 73% year-on-year. There's therefore no need to make immediate cost cuts.
Longer term, however, HSBC's equities traders will need to make amends. Credit Suisse's problems might have enabled them to seize market share, but unfortunately that doesn't seem to have been the case. Being a marginal player in equities trading is a difficult position to fill.
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