Four shareholders, including two of the 20 largest, have expressed support for HSBC's recent decision to eliminate its mergers and equity capital markets teams in the Americas and Europe. This move aligns with the bank's strategy to concentrate on its strongest franchises within its core Asian markets.
HSBC, once a sprawling behemoth operating in over 100 countries, has spent the last decade gradually reducing its global presence and withdrawing from low-return businesses. This strategic pivot comes as U.S. tariffs threaten the earnings power of major trade finance providers like HSBC. Consequently, there is growing pressure on CEO George Elhedery to redirect group capital to Asian economies, which boast healthier regional trading prospects and may be less susceptible to global trade disruptions, according to investors.
Geopolitical dynamics are complicating operations for many globally active businesses, noted Alex Potter, investment director for European equities at HSBC shareholder abrdn, a top-30 investor. Despite multiple acquisitions over the years, foreign banks have struggled to secure a significant market share in U.S. equity investment banking, he added.
CEO Elhedery is expected to provide further insights into his vision for HSBC when the bank announces its full-year results on February 21. This will include details on cost savings from his restructuring plan. Unconfirmed media reports suggest these savings could range between 1.2 billion and 3 billion pounds ($1.5-$3.8 billion), partly achieved through additional cuts to management roles and units similar to those already eliminated, according to a second bank insider.
HSBC declined to comment on these reports. The bank's London-listed shares have increased by 11.5% year-to-date, following a 20% rise in 2024.
Sajeer Ahmed, a global equities portfolio manager at HSBC investor Aegon Asset Management, stated that management is rigorously evaluating each business to achieve a sustainable return on tangible equity (ROTE) of approximately 16%. Many U.S. banks with similar return profiles are trading at significantly higher price-to-book multiples, he told Reuters. Elhedery's strategic focus on profitability over empire building aims to address this valuation discrepancy over time, Ahmed added.
Forecasts compiled by the bank indicate that analysts expect a full-year profit of $31.6 billion, showing little change after a substantial 78% increase to $30.3 billion in 2023.
CEO Elhedery faces internal challenges as well. The removal of key rainmakers and IPO advisors could present difficulties in managing perceptions as 2025 progresses. Amrit Shahani, a partner at consulting firm BCG Expand, noted that such teams are poised for double-digit growth due to deregulation and consolidation driven by former President Trump.
There are concerns about job security among staff in affected businesses, and morale is waning in related divisions, according to two more sources at the bank. Alex Marshall, managing partner at strategic growth consultancy CIL, emphasized that the decision is not merely about choosing between China and the West. "Asian capital is a significant growth story. This is a huge prize, and HSBC has capitalized on it. In contrast, Europe's share of global capital flows appears rather weak," he said.
(1 British pound = $1.2555)
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Additional reporting by Lananh Nguyen in New York and Amy Jo Crowley in London; Editing by Kirsten Donovan.
