HSBC’s Gulliver Mulls Moving Investment Bankers Out of Britain

HSBC Holdings Plc Chief Executive Stuart Gulliver said he’s considering moving some investment bankers from Britain as part of a strategy review due next month.

Europe’s largest bank will unveil measures to boost returns at its global banking and markets division as part of a wider shareholder update on June 9, and “that may involve moving some of the GBM activities out of the U.K.,” the CEO said on a call with analysts as the firm reported first-quarter results Tuesday.

While the division’s surging currency and equity trading helped the bank beat earnings estimates this quarter, some analysts have called for HSBC to shrink its investment bank to boost profitability.

“Nothing is sacred at HSBC as I think Gulliver is determined to revive profitability, by sales, cost cutting and rationalization, in an attempt to pull away from all the other negative ‘noise,’” said Chris Wheeler, an analyst at Atlantic Equities in London. “The message will be to examine each business in global banking and markets and ensure it is aligned to commercial banking, the bank’s DNA, in serving commercial clients.”

Gulliver also said the update would also provide “some of the criteria” the bank will use to examine whether it should relocate its London headquarters overseas to sidestep higher taxes in Britain.

British banks are reorganizing their activities ahead of rules requiring them to separate consumer units from riskier securities trading operations by 2019. HSBC has said it will split off its U.K. consumer bank and base it in Birmingham, England.

Bank Levy

George Osborne, the ruling coalition’s finance minister, raised the levy on bank balance sheets in his most recent budget, the eighth increase since the tax was introduced to share the burden from bank bailouts in the financial crisis. Both the Labour and Conservative parties have pledged a more onerous tax regime for banks.

“Whatever non-ringfenced bank we leave behind will be subject to the levy because it will have wholesale liabilities that aren’t subject to deposit insurance,” Gulliver said Tuesday.

Run by Samir Assaf, the investment bank accounts for more than a third of pretax earnings at HSBC. Citigroup Inc. and JPMorgan Chase & Co. analysts last month urged Gulliver to trim the unit, saying it didn’t generate enough return on equity given its share of the bank’s assets. Gulliver has previously said parts of the investment bank that don’t offer sufficient returns may face “extreme solutions.”

Client Flows

Pretax profit at the investment bank rose 6 percent to $3.04 billion, the bank said Tuesday. Revenue from foreign exchange, the largest earnings driver in the markets business, climbed to $942 million from $757 million a year earlier, adjusted for currency moves.

HSBC said increased client flows helped equities revenue climb to $478 million in the quarter from $407 million in the same period a year ago. Its credit business reported a 4 percent gain to $338 million, while the rates business declined 17 percent to $472 million.

The investment bank “was a positive surprise,” Ian Gordon, an analyst at Investec Plc in London who has a sell rating on HSBC, said in a note. The bank’s quarterly figures “offer slight relief in the context of the challenges that HSBC continues to face.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE