November 20, 2019 / 4:15 PM / 17 days ago

Breakingviews - HSBC markets boss exit presages U.S. and EU pain

The HSBC bank logo is seen at their offices in the Canary Wharf financial district in London, Britain, March 3, 2016.

LONDON (Reuters Breakingviews) - Few investment-bank bosses have displayed the staying power of Samir Assaf, the HSBC executive who may soon be replaced after running the $150 billion lender’s global banking and markets business since 2011. The division’s return on equity in recent years has been solid if unremarkable, and hides the underperforming U.S. and European businesses. His departure leaves those regions looking vulnerable.

The 59-year-old Assaf has headed investment banking under three different chief executives and two chairmen. The Financial Times reported on Wednesday that Interim Chief Executive Noel Quinn will soon move him into a non-executive role. Assaf has survived potentially embarrassing episodes like the exit after just 18 months of former Goldman Sachs banker Matthew Westerman, who was supposed to get HSBC onto more deals and initial public offerings. Last year a leaked memo from unnamed employees said the group’s investment-banking strategy had “utterly failed”. 

That’s a little harsh. Assaf’s investment bank is less reliant on traditional dealmaking than some rivals. Almost one-fifth of its $15.5 billion revenue last year came from currency-trading services, while it made almost the same amount again from managing the cash needs of its clients. Those businesses were among the biggest contributors to the unit’s 5% revenue growth in the three years to the end of 2018. That means a listless deal advisory franchise is less of a concern. Assaf has churned out a 10%-11% return on tangible equity in recent years, a number that many peers can only aspire to. 

His successor nonetheless inherits a bloated operation with uneven performance. Revenue per employee rose a meagre 2% between 2016 and 2018 - a boom period for most investment banks. Much of the flab is probably in Europe, where pre-tax profit fell 11% last year, and the United States, which is growing but from a small base. UBS analysts reckon that Assaf’s business accounts for 60% of HSBC’s capital in these two regions, which have recently reported returns below their probable cost of capital. 

The Lebanese-born banker will stick around in a non-executive role to advise the as-yet unknown new broom. That’s useful. But Assaf has probably left much of the hard graft to his replacement.

Breakingviews

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