Others may doubt that HSBC can punch its weight in investment banking, but the heads of HSBC Securities USA and Global Markets, Americas, tell Geraldine Lambe that HSBC is a work in progress.
In the past year, HSBC has moved from 14th place in the US investment grade debt capital markets (DCM) league tables to number nine.
It now sits at fifth place in the Latin American DCM tables and has a long list of notable transactions.
HSBC’s advertising stresses its combination of local knowledge and global reach – and this is what differentiates the bank from its competitors, says Tony Murphy, chief executive of HSBC Securities USA and co-head, Corporate, Investment Banking and Markets, Americas. HSBC knows its strengths, he says, and is playing to them in order to build the investment bank. “Our edge is cross-border reach and local distribution franchises.”
Of the 500 people hired at the investment bank in the US in the past three years, the emphasis has therefore been on building HSBC’s distribution capabilities. For example, at the New York-based sales and trading operations about 60 people have been added in FX and about 180 in fixed income. “Our target clients are US domestic corporates wanting to access non-US markets and our international clients who want to tap into US markets,” says Mr Murphy.
The strategy is working, he says. In DCM, HSBC did 13 dollar deals for non-US issuers and 29 international deals for US corporates.
Long-term revamp
A key point made by Mr Murphy and Joseph Petri, head of Global Markets, Americas and treasurer for HSBC Bank USA, is that HSBC’s decision in 2003 to build an investment bank is part of an almost decade-long continuum. This is a firm-wide revamp to a global organisational structure, built around selected industry sectors, that has taken an accelerated form in the past three years or so. The foot on the accelerator belonged to Stephen Green. He was promoted to HSBC CEO in 2003, having headed the corporate and investment banking and markets division, and is the prime architect of the bank’s strategy in this area.
Joseph Petri
“Once our global structure was in place, we began to add to traditional HSBC strengths – such as FX, derivatives, metals trading and balance sheet products,” says Mr Petri, whose own division, Global Markets, was created in November 2002. “In 2003 and 2004, our strategy was to ‘upgrade’ and build our government bonds and agencies business, our investment grade corporates and emerging markets fixed income capabilities, and our mortgage-backed securities and futures businesses. In 2004, we began to tie in local market capability.”
Going local
Like Mr Murphy, Mr Petri emphasises that it is HSBC’s local presence and local balance sheets in lots of markets – particularly emerging markets – that is a big differentiator for the firm. For example, its operations in Chile, Argentina, Mexico and Brazil make it an ‘Americas’ business rather than a US business. It is about tying it all together. “Pemex tapped into our Asian and private banking networks,” he says.
The point is, they argue, that the HSBC story is one of steady progress. Mr Murphy says HSBC knows exactly what it wants to build and has a precise timeline for achieving that. “For about the last five years we have been adding four to five products and services to our capabilities every year, and for many of the product lines we are now in the later stages of this development.”
Part of last year’s plan was putting the mortgage-backed securities (MBS) business together. It is roughly a four-year strategy and Mr Petri says the bank is about one year into it. HSBC’s hefty hiring programme has been central to this strategy. The bank snared Neil Leonard, formerly head of MBS at Lehman Brothers, and Todd White, who ran the pass-through desk at Lehman, as co-heads of the business in the US. To build another of its targeted product segments, US governments and agencies business, in March it poached a team of six from Credit Suisse First Boston.
The securitisation business is growing fast under Jon Bottorff global head of ABS and structured capital markets, who joined from Dresdner Kleinwort Wasserstein in 2002. Globally, HSBC has made some decent progress. Last year, it led the largest cash securitisation in Asia – ex-Japan – when the Government of the Hong Kong Special Administration Region completed its HK$6bn ($769m) securitisation of toll revenues from tunnels and bridges. And in Europe, it has made it into the top 10 securitisation houses.
Head-hunting
The key has been attracting the right people, says Mr Murphy. “We compete head on with the bulge bracket firms in the strategic areas that we have targeted, so we needed to hire people who had competed at that level.”
How does HSBC persuade the highest calibre people to leave top-flight investment banking platforms to work for what some see as a start-up operation? It is exactly that, says Mr Murphy. “In some areas it has just that sort of energy, that kind of entrepreneurial spirit. It’s about finding people with the right cultural fit, who still want a challenge, who enjoy building. Now it is a lot easier to sell HSBC’s vision.”
Where HSBC is weakest is in mergers and acquisitions (M&A) and equity capital markets. While most bankers believe that it has the muscle to make itself felt, many think it lacks the ‘attitude’ of an investment bank. Its fixed income franchise may be a growing powerhouse, but will it ever be able to compete head to head with the top advisory firms? Since John Studzinski joined from Morgan Stanley to help build its investment banking vision, the debate has moved from whether this was a good move to where are the deals?
And, it is true, headline M&A and equity capital markets deals are thin on the ground but, argues Mr Murphy, this sort of franchise is not built overnight. “It is still early days in the build-out. While being results-focused, HSBC is taking the long view in these developments.”
Work in progress
In the past year or so, the bank has been repositioning its equity business, including turning around its research model by replacing maintenance coverage with strategic research. Mr Murphy says that equity is the last part to be rolled into the Global Markets franchise. It is being built on a similar model to that followed in its fixed income and FX businesses: a focus on the top tier, global accounts; committing capital to facilitate customer flows – versus the agency brokerage that was HSBC’s traditional equity model; and alignment along the same sectoral lines.
“We can do this because it is the same type of factory we’ve built up a number of times and we’re already talking to these accounts worldwide or are their relationship bank. It’s a question of execution, not strategy,” says Mr Murphy.
HSBC has been building its advisory capabilities – some would say pretty much from scratch – over the past two years, under the stewardship of Mr Studzinski, who was a M&A rainmaker at Morgan Stanley. Investment banking too is following the same structure as the global markets businesses and Mr Murphy says that globally, the sector heads are largely in place.
As one of the last pieces of the puzzle, George Foussianes was appointed in April from Goldman Sachs as head of HSBC’s advisory group. He joins his former Goldman colleagues, David Livingstone, head of global investment banking advisory in EMEA, and Steven Wallace, head of advisory in Asia.
Slow burn
Mr Murphy is not perturbed by the slow build-up nor the resources being consumed by a business that has yet to take HSBC into the top division of M&A players. “This is a slow burn business – and we are doing deals already. Early on, capital markets business is a way of monetising the investment we are making in our investment banking franchise: there is plenty of other business that is of strategic value to our clients.”
Similarly, HSBC is not trying to compete with the M&A giants – not yet anyway. “Many ask us how we hope to compete against Goldman in domestic M&A. But that is not our focus. Again, it is about leveraging our strengths, and that is in cross-border business,” says Mr Murphy.
This is exemplified by HSBC’s advisory role to US-based InterActiveCorp’s completion of its $60m investment in eLong Inc, a privately held online travel provider based in Beijing, or to Dubai International Capital in its $800m acquisition of visitor attraction business, the Tussauds Group.
As Mr Murphy and Mr Petri tell it, HSBC’s game plan is all about consistency and steady progress; about long-term fitness rather than short-term results. Is HSBC’s the story of the tortoise and the hare? Says Mr Murphy: “We’re either patiently aggressive or aggressively patient. Whichever way you look at it, we’ll get where we want to go.”
TONY MURPHY'S CAREER HISTORY:
2003: appointed president and CEO, HSBC Securities USA, and president, HSBC Capital USA
2000: returned to US as chief strategic officer, Corporate, Investment Banking and Markets, Americas
1990: joined HSBC as head of risk management, Treasury USA. Moved to London in 1996 as head of risk management, Global Markets Europe
1988: joined Nomura International, London, bond trader and risk management
1986: joined HSBC James Capel & Co, London, as a fixed income market analyst
1985: joined Towers, Perrin, Forster and Crosby as an actuarial consultant
Graduated from Trinity College, Dublin in 1981 with degrees in mathematics and physics. Also holds a PhD in theoretical physics from Oxford University and is a Fellow of the UK Institute of Actuaries
JOSEPH PETRI'S CAREER HISTORY:
2004: appointed head of Global Markets, Americas, and treasurer, HSBC Bank USA. Also co-head of the Corporate, Investment Banking and Markets (CIBM) division in the Americas
2003: joined the newly established Global Markets management committee
2001: appointed treasurer for HSBC Bank USA and head of sales and trading for FX, derivatives, metals and portfolios
2000: joined HSBC as head of sales for investment banking & markets, Americas
1995: appointed president and senior partner of macro hedge fund Summit Capital Advisors
1990: became one of the first two investment bankers to serve on the US Federal Reserve Board’s Foreign Exchange Advisory Committee
1987: appointed president of Merrill Lynch government securities and global foreign exchange, and head of global institutional sales
1981: joined Merrill Lynch MBA training programme
1979: joined Wall Street law firm Bigham, Englar, Jones & Houston as a litigation attorney
Has a BA from College of the Holy Cross and a JD from Fordham University Law School. Member of both the New York State and Connecticut Bar Associations.
