HSBC HSBC Holdings PLC

By Paul Clarke

Of Financial News

Staff at HSBC Holdings PLC's investment bank are braced for "the worst," as the group prepares to slash bonuses and cut jobs in a radical overhaul of its major business lines.

Financial News reported last week that the U.K. lender was mulling the creation of a wholesale division with closer ties between its investment and commercial banking teams, as well as a new "bad bank" to house unwanted assets.

Final details of the plan will be announced on Tuesday alongside the group's full-year earnings, with its European investment bank--and particularly its trading division--expected to be hit hard.

One equities trader at the bank in London said: "It has to be something radical, and we're expecting the worst. Tuesday is bonus day, so the rumors are that some people will be well compensated, others will get nothing and a lot of people will be fired."

A December survey by pay benchmarking website Emolument found HSBC bankers to be the most pessimistic among staff at 11 City banks about the 2020 bonus round, with just 29% expecting a higher payout than last year. More than a fifth expected no bonus at all--more than at any other bank.

A member of HSBC's financial institutions group said: "There have been a lot of shake-ups over the years, but this time it feels more significant. People are apprehensive."

HSBC declined to comment.

Presenting poor third-quarter results in October, HSBC's interim Chief Executive Noel Quinn promised to remodel the bank by shifting capital to higher-growth businesses, having described the performance in some areas as "not acceptable." The bank is reportedly looking to shed as many as 10,000 jobs through the disposal of businesses, including its French retail banking operations, and staff cuts.

HSBC's global banking and markets division, which houses both its sales and trading and traditional investment banking teams, was struggling at the nine-month stage in 2019, with revenues down across most major units. In November, GBM lost its long-serving head, Samir Assaf, in a move widely perceived as a precursor to broader changes to top-level personnel and strategy.

A senior investment banker at HSBC said: "One problem the bank faces is that there are a lot of very protected people who have been here for many years. This has made any drastic personnel changes difficult. But the feeling is that a lot of the old guard will be ushered out."

A person familiar with the matter added: "It's been very Machiavellian with certain people tapped on the shoulder for promotions and others being assessed for potential cuts after the strategy announcements."

"Whole swathes of middle management will be stripped out as reporting lines are simplified, and it's expected that a lot of sub-par [managing directors] will be targeted for cuts."

Ian Gordon, banks analyst at Investec, said it made sense for HSBC to strip costs from its riskier investment bank operation. "It was something that [former CEO] Stuart Gulliver avoided when he restructured the bank because it was predicated on rising interest rates," he said. "Now it makes more sense to target GBM by taking out people and risk-weighted assets."

HSBC has been trying to win roles on more large mergers and acquisitions deals and initial public offerings for years but continues to lag behind its competitors. The hope is that forging closer ties between its investment bank and its commercial bank, which serves large-cap companies, could help generate more lucrative advisory work in the future.

Mr. Gordon at Investec said: "A merger of two divisions doesn't make any difference if they simply add them together. If this is a measure that rips out costs and creates some coordinated thinking, this will add some gloss to the announcement."

Discussing the potential creation of a bad bank--a move taken by the likes of Barclays and Deutsche Bank in recent years--Gary Greenwood, a bank analyst at Shore Capital, said: "A bad bank is a way of focusing investors' and analysts' attention. It's difficult to focus on a turnaround if one part of the business is being weighed down by underperforming assets. It makes the turnaround messaging cleaner."

He added: "The big issue [HSBC] will have is people. Working for a business that is winding down will be an extremely demotivating place to be."

Website: www.fnlondon.com

(END) Dow Jones Newswires

February 17, 2020 04:36 ET (09:36 GMT)

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