Profits at HSBC are increasing, but London dealers are not sharing the profits

HSBC’s bankers and traders had a pretty good third quarter. The bank announced today that third-quarter earnings before taxes in Global Banking and Markets (GBM) were up 13% from 2020 and up 24% for the nine months of 2021 overall.

This may sound disappointing compared to US banks’ numbers, but HSBC’s bankers and traders operate in an environment of cost-cutting and reduced capital allocations. Across the bank, HSBC has only $ 2.6 billion of the $ 4.5 billion so far – the $ 2.6 billion cost cuts cost HSBC $ 3.1 billion.

The risk-weighted assets associated with global banking and markets will also be curtailed; HSBC made the “strategic reduction of the capital employed for G10 market making for long-term interest rates “ for a 45 percent decrease in its fixed income sales and trading income (excluding foreign exchange) in the third quarter. Meanwhile, the sales and trading income of stocks boomed and now represents the larger revenue line, which would have been unthinkable a few years ago.

The other element of HSBC’s new strategy is of course its focus on Asia. As the bank continues to keep costs under control, there are signs that the wages of its London salespeople and dealers are being cut while their counterparts in Hong Kong are not. – In the first three quarters of 2021, compensation spending for HSBC’s global banking and marketing division in London only increased 6%; in Hong Kong it was up 11%. This might be tolerable if the bank’s Hong Kong vendors and traders make more money (and there is indeed much talk of the strength of Asian stock trading earnings in the third quarter), but Asian GBM earnings are down 17% so far this year while The London business has returned to profitability after a loss in 2020.

HSBC has a habit of getting premium increases in the fourth quarter and so can still make amends, but with cost cuts of $ 1.9 billion this year. This is especially the case if they are unlucky enough to work in fixed income investments.