6 days ago
23
Investors in HSBC are backing CEO George Elhedery’s decision to cut investment banking operations in the US and Europe, aligning with the bank’s strategy to focus on its stronger Asian markets, even as Trump-era deregulation fuels optimism for capital markets growth.
Four shareholders, including two of HSBC’s 20 largest, said the bank’s move last month to shut down its mergers and equity capital markets teams in the Americas and Europe aligns with its strategy of strengthening its core business in Asia.
Once a vast banking empire spanning over 100 countries, HSBC has spent the last decade streamlining its global presence, shedding low-return operations.
Investors say mounting US trade tariffs are pressuring CEO George Elhedery to shift capital into Asian economies with robust regional trade, potentially shielding HSBC from global disruptions.
“Geopolitics are making life more difficult for lots of businesses that operate globally,” said Alex Potter, investment director for European equities at HSBC shareholder, a top-30 investor.
“Even with multiple purchases over decades, almost no foreign banks have achieved meaningful market share in US equity investment banking.”
Elhedery is expected to outline further details of his restructuring plan when HSBC reports its full-year results on February 21, including expected cost savings.
A bank insider suggested savings could range between £1.2 billion and £3 billion ($1.5 billion to $3.8 billion), achieved partly through further reductions in management roles and adjacent units. HSBC declined to comment.
Despite the restructuring, HSBC’s London-listed shares have risen 11.5% year-to-date, following a 20% increase in 2024.
Sajeer Ahmed, global equities portfolio manager at HSBC investor Aegon Asset Management believes the bank is conducting a thorough review of its businesses to ensure a sustainable return on tangible equity (ROTE) of around 16%.
“Many US banks with a similar return profile are trading at a significantly higher price-to-book multiple,” Ahmed said.
HSBC, which posted a 19.3% ROTE in the first nine months of 2024, traded at a multiple of 1.04 on Friday—less than half [Morgan Stanley](w)’s 2.16 multiple, despite Morgan Stanley delivering a slightly lower ROTE of 18.8% last year.
“The sharp switch to profitability from empire building is Elhedery’s attempt to tackle that valuation differential over time,” Ahmed added.
Analysts forecast HSBC’s full-year profit at $31.6 billion, little changed from the $30.3 billion it earned in 2023 after a 78% year-on-year surge.
Elhedery faces internal challenges as well. The removal of key dealmakers and IPO advisors could become more difficult to justify as 2025 progresses, especially with market conditions favouring a rebound.
Amrit Shahani, a partner at consulting firm BCG Expand, noted that such teams are expected to see “double-digit growth on the back of Trump-fuelled deregulation and consolidation this year.”
The restructuring has unsettled staff, with affected employees worried about job security, while those in related divisions fear further cuts, two bank sources said.
However, some analysts argue that HSBC’s pivot is more about seizing long-term opportunities in Asia rather than choosing between Western and Chinese markets.
“I don’t think this is about having to make a difficult choice between serving China versus serving the West,” said Alex Marshall, managing partner at strategic growth consultancy. “Asian capital is a significant growth story.
“This is a huge prize, and HSBC has done well out of it. Europe’s share of global capital flows, by contrast, is pretty limp.”
Boluwatife Enome
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