HSBC’s global banking and markets unit jumped 8% last year as the UK lender increased fees from dealmaking and maintained trading revenue in most asset classes.
The UK lender posted revenue of $16.1bn for its global banking and markets unit last year, according to its annual accounts. Fees from capital markets and M&A work surged 36%, with HSBC’s investment bank benefiting from a resurgence in debt underwriting revenue.
HSBC’s pre-tax profit of $30.3bn for 2023 was a record for the bank and an increase of 78%, but still below the $34bn expected by analysts. In a statement, chief executive Noel Quinn said that the results “reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.”
HSBC finished 16th in the investment banking fee league tables last year, according to data provider Dealogic, with 1.3% share of the market. This is up from 17th a year earlier.
The UK lender’s markets and securities services business posted revenue of $9bn, which was largely in line with 2022. However, equity trading fees of $552m were nearly half of the $1bn it earned in the unit in 2022.
HSBC’s GBM business dipped 4% in the final quarter of the year to $3.7bn.
READ HSBC hikes bonuses to $771,700 for its top investment bankers
HSBC has bolstered its UK investment bank over the past year, hiring two senior dealmakers for corporate broking in July, but faces stiff competition from Barclays, which is aiming to consolidate its first place finish in the UK dealmaking fee league tables last year. In recent months, hires within its investment bank have focused on its core markets of China and the Middle East.
Investment banks have struggled against an ongoing drought in deals, with Wall Street banks and Europeans alike posting sharp declines in M&A fees in 2023. UK rival Barclays unveiled a 12% decline in investment banking fees for 2023, led by a 23% slump in revenue from M&A work.
Barclays also unveiled its first investor day since 2014, separating its business into five key units including separating its investment bank from its corporate bank. While the UK lender will look to reduce its reliance on its investment bank, it is not pulling back and within its dealmaking team intends to shift the balance away from debt underwriting to do more M&A and equity capital markets work.
Deutsche Bank’s origination and advisory business was up by 25% in 2023, buoyed by a rebound in debt capital markets activity as its M&A unit slipped 25%. A hiring spree of 50 managing directors at the German lender last year aims to shift the balance of its investment bank towards more M&A and equity capital markets work.
To contact the author of this story with feedback or news, email Paul Clarke
The biggest Wall Street banks cut 30,000 jobs last year, kicked off by Goldman Sachs who informed its staff of plans to make its deepest reductions since the 2008 financial crisis shortly after Christmas 2022.
Goldman’s 3,200 job cuts were swiftly followed by 3,500 at Morgan Stanley, and then 5,000 at Citigroup. Bank of America refrained from deep redundancies, but 4,000 employees departed regardless through its ‘natural attrition’ approach last year.
With the exception of Credit Suisse, which started cutting thousands of roles before being acquired by its biggest rival UBS in March, European banks refrained from deep redundancies last year.
Times have changed.
Whether it’s an attempt to revive a flagging share price, free up funds for buybacks, the march of technology, strategic overhauls or simply reining in costs, top European banks are cutting jobs and reducing bonuses for those that remain.
READ ‘Doughnuts’ loom: Bankers brace for brutal bonus season
“It’s a balancing act for a lot of European banks, particularly after two years of poor performance for investment banking. There’s only so long you can keep paying expensive talent in the hope that revenue will recover,” said Gary Greenwood, a bank analyst at Shore Capital.
Barclays is expected to unveil a strategic overhaul alongside its annual results on 20 February, with the UK lender looking to save £1.25bn in costs. So far, job cuts have mainly hit support functions. Deutsche Bank said that 3,500 jobs will go over the next year, largely in back office functions, as it looks to save €2.5bn after headcount swelled 6% in 2023.
Societe Generale is cutting 900 jobs within its Paris headquarters as part of new CEO Slawomir Krupa’s plans to pull back on costs, while UBS has earmarked around $6.5bn in employee expenses to be stripped out as it integrates Credit Suisse.
On a smaller scale, Rothschild cut around 10 investment banking jobs in January, with former Goldman dealmaker John Brennan departing.
“The US banks are much more reactive in terms of cutting headcount than their European counterparts,” said Stephane Rambosson, co-founder of headhunters Vici Advisory. “European banks are now focused on costs, but each case is specific to their circumstances rather than market conditions. Wall Street banks are also quicker to hire again when the tide turns.”
As well as job cuts, bankers are enduring another brutal bonus round. There is widespread disgruntlement at UBS as the bank spread an already small pool around its existing employees, the influx of Credit Suisse staff and a flurry of senior Barclays dealmakers brought in last year on guarantees, according to bankers.
Barclays has handed zero bonuses to up to a third of dealmakers in some units, bankers told Financial News, with Bloomberg previously reporting that “dozens” of employees were set for doughnuts this year. Deutsche Bank, which also has to digest an expensive hiring spree and its £410m acquisition of City broker Numis, is also set to reduce bonus payments.
READ Investment banks face talent crunch even after deep job cuts
“We have observed a similar, but even more aggressive, trend with the European banks regarding layoffs and bonus pool reductions,” said Chris Connors of Wall Street compensation consultants Johnson Associates. “The European banks have struggled to keep pace with their American counterparts on business results and compensation. From the employee perspective, we anticipate European bankers to be similarly disappointed to US bankers given the muted results in advisory and other units such as underwriting, which are still well below 2021 levels.”
While US banks cut dozens of dealmakers last year, some European players took advantage of the dislocation. Deutsche hired 50 senior bankers, while Santander picked up dealmakers from both the fallout from Credit Suisse’s takeover and from Goldman Sachs and Morgan Stanley.
Most cuts so far at European banks have focused on management or back office functions, and there’s little suggestion that deep investment banker redundancies are on the cards, particularly as banks prepare for a revival in dealmaking activity after a near two-year lull. However, headhunters told FN that many banks were taking a much more cautious approach about bringing in senior talent.
During its fourth quarter earnings call, Deutsche Bank chief executive, Christian Sewing said that the bank had “positioned ourselves for a recovery in origination and advisory” after its hiring spree. “Now, this is where we see considerable growth potential,” he added.
“Investment banking is a people business, so banks will be reluctant to let too much talent depart,” added Greenwood. “This could change — a recovery is possible, but there are still a lot of risks in the market.”
To contact the author of this story with feedback or news, email Paul Clarke
When Bob Diamond got the band back together and installed former Barclays investment bank boss Rich Ricci at the helm of City broker Panmure Gordon in 2020, he immediately started unwinding a loss-making foray into new areas of dealmaking.
An unsuccessful rebrand as a “21st-century merchant bank” — a term rarely used since the 1990s — lost £35m at Panmure in two years as it splurged on new dealmakers. Ricci promised to “get back to basics” as a corporate broker, a move that seemed shrewd as the firm returned to a profit of £3m in 2021.
But a year later, Panmure slipped to a £16m loss as brokers battled a 20-year low in IPOs and tepid research fees in the wake of the EU’s MiFID II regulation. Now, Ricci and Diamond are making a fresh play to revive the broker, which was founded in 1876, by merging with rival Liberum in an all-share deal unveiled on 16 January.
The move comes at time when brokers are battling for survival amid an ongoing dearth of UK deals. Richard Morecombe, who has been installed as president of the newly rebranded Panmure Liberum, said the aim was always to get bigger, and the broker had long accepted that consolidation was necessary.
“When we opened talks with Liberum, it was just about the only broker in the City we hadn’t already spoken to,” he told Financial News in an interview shortly after the tie-up was announced on 16 January.
Bidhi Bhoma, the former boss of Liberum who becomes deputy CEO in the new venture, said that the “kernels” of a conversation about a merger started during the summer, but the two firms started talking seriously about a tie-up during the autumn.
READCity brokers Panmure Gordon and Liberum to merge
Panmure Liberum is the latest example of a tie-up between two big players in the sector, bringing together around 290 staff and 250 UK corporate clients. It comes at a time when a dearth of capital markets activity has seen pure play brokers facing what one banker described as an “existential crisis”.
Consolidation — touted as a necessary evil in the close-knit sector for years — surged in 2023 as Deutsche Bank paid £410m for the largest City broker, Numis, and Cenkos and FinnCap merged to create a new investment bank called Cavendish.
Diamond, the former Barclays chief executive who left in 2012 amid a Libor-rigging scandal, took control of Panmure through his investment firm Atlas Merchant Capital in 2018, and the firm lost around £70m over the four years to 2022. After the £3m profit in 2021, Panmure report a loss of £16.6m a year later — the latest figures available — while Liberum unveiled its first ever annual pre-tax loss of £11m in 2022 after a 43% decline in revenue.
While 2023 numbers have not been published, Bhoma said that the combined businesses generated around £70m in revenue last year as markets improved. It sees a cost base of £50m in the full year 2025 as the two businesses come together, he added.
With the struggles of the sector, it’s difficult not to see the merger of Panmure and Liberum as a crisis-driven move to save costs. However, people familiar with the situation said that Ricci and Diamond see the mid-market broking space as an under-served opportunity to gain market share. Diamond has often said that the financial services sector broadly is too fragmented, and the UK investment banking market that many executives believe has bottomed out could be seen as an obvious target.
“We think this is a positive and strong move, as opposed to a defensive move,” said Morecombe. “We believe in public equity capital markets. We all understand that things need to change to encourage more investment into UK public markets, but we believe we will be well-positioned to be a very big player in that role going forward.”
READ Deutsche shrugs off mixed history of bank deals with purchase of Numis
Atlas Merchant Capital, which had around 76% ownership of Panmure Gordon, will become the biggest shareholder of the new entity, with approximately 37%, followed by Liberum founder Shane Le Prevost, with the two together holding the majority of the shares. Qatari investors, who previously had a stake in Panmure, will end up with around 5% of the new venture.
Diamond’s investment vehicle has also pledged more financial backing to the newly merged broker.
While both Panmure and Liberum executives have pointed to a lack of overlap in clients and activities, by bringing together the two businesses cost-cutting is expected. Bhoma said there would be “very material cost synergies” through the merger.
“How these businesses operate on a day-to-day basis, the trading systems, software, premises, other suppliers… those synergies are very material,” he said. “There will be a degree of people synergy, but the non-people synergies are just as material.”
One driver for a surge in broker tie-ups has been joining back-office costs, which are often the first to go during a merger. While revenue-generating roles are often slow to be cut, executives at rivals say that many staff have been unsettled by ongoing rumours of mergers and have been easier to prise out.
In September, Clayton Bush, a managing director in Liberum’s consumer and leisure investment banking team, joined Berenberg, while Panmure’s head of natural resources dealmaking John Prior quit in January to launch his own venture.
Panmure Liberum’s 250 corporate clients mean it has the largest number of UK Plc customers of any broker. Data provider Adviser Rankings puts it at 14th by market capitalisation of clients, a more common metric of success among big investment banks, which focus on FTSE 100 clients.
One banker at a rival said that Panmure Liberum will need to ensure the strategy goes beyond just having a large number of corporate clients. “The headline brokership is a loss leader,” they said. “You need actual transactions.”
Before the merger, Liberum was already focused on expanding into new areas of investment banking, particularly doing more M&A work. Most City brokers accepted that there was a need to diversify revenue streams, even before the dearth in UK equity deals.
Morecombe said the the new venture would be “all cap” and will include servicing clients with a value of less than £100m as well as “some FTSE 100 clients”.
“We will also have an element of diversification,” he said. “That comes from having a range of sectors, but we also see more diversification to include the likes of more M&A, maybe private M&A and debt advisory.”
Meanwhile, Bhoma said that the deep freeze of IPO activity is showing signs of improving. “We are actively pitching for IPOs in 2024, ones that are going to be material in size,” he said. “That was not something that was going on at the start of 2023, so it’s definitely improving.”
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To contact the author of this story with feedback or news, email Paul Clarke