By Sinead Cruise, Lawrence White and Selena Li
LONDON/HONG KONG (Reuters) – Investors in HSBC are backing management attempts to shutter parts of its investment bank, even as U.S. President Donald Trump’s deregulatory agenda fuels hopes for a boom in capital markets activity.
Four shareholders, including two of the 20 largest, said last month’s decision to axe HSBC’s mergers and equity capital markets teams in the Americas and Europe made sense as the bank focuses on its strongest franchises in its core Asian markets.
Once a sprawling behemoth spanning more than 100 countries, HSBC has spent the last decade slowly shrinking its global footprint and exiting low-return businesses.
As U.S. tariffs threaten to crimp the earnings power of major trade finance providers like HSBC, pressure is mounting on CEO George Elhedery to shift group capital into Asian economies with healthy regional trading prospects that may be less vulnerable to global trade snags, the investors said.
“Geopolitics are making life more difficult for lots of businesses that operate globally,” said Alex Potter, investment director for European equities at HSBC shareholder abrdn, a top-30 investor.
“Even with multiple purchases over decades, almost no foreign banks have achieved meaningful market share in U.S. equity investment banking,” he added.
Elhedery is set to unveil further details of his vision for HSBC when it reports full-year results on February 21, including cost savings from his restructuring, one bank insider said.
Unconfirmed media reports put those savings at between 1.2 billion and 3 billion pounds ($1.5-$3.8 billion), partly achieved through further cuts to management roles and units close to those already scrapped, a second bank insider said.
HSBC declined to comment.
The bank’s London-listed shares are up 11.5% year-to-date, after rising by a fifth in 2024.
Sajeer Ahmed, global equities portfolio manager at HSBC investor Aegon Asset Management, said he felt bosses were meticulously analysing each business, with a view to delivering a sustainable return on tangible equity (ROTE) of around 16%.
“Many U.S. banks with a similar return profile are trading at a significantly higher price-to-book multiple,” he told Reuters.
For example, HSBC, with a 19.3% ROTE in the first 9 months of 2024, traded at a multiple of 1.04 on Friday, less than half the 2.16 for Morgan Stanley which returned 18.8% last year.
“The sharp switch to profitability from empire building is Elhedery’s attempt to tackle that valuation differential over time,” Ahmed said.
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