HSBC has announced plans to wind down significant parts of its investment banking operations in the UK, Europe, and the Americas, marking a major shift in the bank’s strategy under new CEO Georges Elhedery. As reported by the Financial Times (FT), the bank will close its mergers and acquisitions (M&A) advisory and equity capital markets (ECM) businesses outside of Asia and the Middle East. The decision is part of Elhedery’s broader effort to streamline the bank’s operations and enhance its competitive position in markets where it has struggled.
According to an internal memo from HSBC, the move comes as the bank recognizes that these business units have not been able to achieve the necessary scale to compete effectively against larger rivals. A source familiar with the matter explained, “It was just a very tough job to build up to a level where [HSBC] has a competitive edge,” adding that continuing to “break into” these markets would not be a good use of the bank’s resources.
Despite the closures, HSBC will maintain its stronger foothold in debt capital markets, leveraged finance, real asset finance, and infrastructure finance. These units have achieved greater scale and continue to be a strategic focus for the lender in the regions outside of Asia and the Middle East.
The decision highlights the relatively minor role investment banking plays within HSBC’s broader operations. Investment banking accounted for just 6% of the bank’s total revenues in the first half of last year, according to HSBC’s interim report. Revenue from the investment banking division also saw a slight decline of 3% compared to the previous year. As part of its strategy, the bank emphasized that the restructuring would allow it to “simplify HSBC and increase leadership in our areas of strength.”
The changes are expected to be implemented with consideration of local legal requirements, as the bank works through the exit process in various markets. In the regions where HSBC will continue its M&A and ECM capabilities, these operations will be more focused on Asia and the Middle East.
For many HSBC employees, the announcement came as a shock, with one UK-based banker expressing that “no one knew at all” about the decision. Some had even raised concerns internally earlier in January, when there was no initial discussion of the size of the bonus pool for investment bankers, adding to the sense of uncertainty leading up to the news.
This move is part of a broader restructuring effort initiated by Elhedery, who took over as CEO last year. As part of this overhaul, HSBC is splitting the bank into “eastern” and “western” units, merging its commercial bank with its global banking and markets division, which includes its investment banking business. Additionally, the bank is working to reduce costs by trimming its senior leadership team, with high-profile exits, including Annabel Spring, head of HSBC’s global private banking and wealth business, and sustainability officer Celine Herweijer.
Despite benefiting from a period of higher interest rates, HSBC is preparing for the possibility that falling rates may impact its profits. The bank is also facing changes at the board level, as chairman Mark Tucker’s nine-year term limit is approaching.
