HSBC has struggled with investment banking which in many ways doesn’t fit well with its culture. But competitors feel the bank has now got its act together, having integrated investment and corporate banking last year; having moved into the debt and capital markets business; and having climbed up the mergers and acquisitions league tables, albeit just scraping into the top 10.
“HSBC is not on anyone’s radar in terms of investment banking,” says William Fall, London-based president of international operations for Bank of America. “They are like a dark horse in that they are less overt in their intentions but they are going through a strategic repositioning. They have the size of wallet – with the second largest market capitalisation in the world – to buy the pieces they want to build an investment bank within their universal banking model.”
The bank is looking to improve its capital raising, advisory and pension fund business for corporates. However, going hell-for-leather by buying an investment bank is an option HSBC is not interested in. If it had been, it could have bought a few when valuations hit bottom recently. Equally, there is the impossibility of marrying the high-rolling star culture to HSBC’s rather more staid ethos.
“We are looking to build a relationship-minded investment bank and we will build it brick by brick. We don’t mind if it takes five years or 10 years. We will only recruit people who share the same vision,” says Sir John. “What we try to do is screen out avarice and screen out the star culture.”
This makes the hiring of John Studzinski, the former Morgan Stanley high flyer – as co-head of the division – all the more surprising. His specialty is big-ticket mergers and acquisitions. Yet, in the context of corporate lending, large scale M&A will lead to too many conflicts of interest, especially when the bank already counts so many large blue chip companies as clients, says a rival investment banker.
And Studz, as he is known, has told friends he has not suffered a cut in his compensation package because of the move – a statement that may have more to do with saving face, having reportedly lost out in political battles at Morgan Stanley. (At least his colleagues evinced some sympathy. At his farewell dinner they gave him a Ł10 calling card to help offset his personal calls).
“He believes in what I have described and he has done that at Morgan Stanley and that is why he is here,” says Sir John. “Another reason he is here is that he came to us and said, you are sitting on top of an enormous opportunity to build an investment bank in an HSBC mould that is different and I would love to do it.”
First half results from the division rose 8%, benefiting from a larger product range, revenue from refinancings, and record results from debt origination and structured financing. The downside was that the bad debt charge rose 74% to $225m, while dealing profits are not necessarily repeatable.