It has been one of the City’s favourite debating points for years: why is HSBC’s investment bank such a perennial underperformer?
The inherent advantages of Europe’s biggest lender – geographical scale, its position at the heart of global trade flows – have never translated into league table dominance, despite the leadership of heavyweight figures such as John Studzinski, Stuart Gulliver and more recently (and briefly) Matthew Westerman.
To a degree, such criticism misses the point. HSBC has never sought to emulate Goldman Sachs in areas like M&A advisory, while its cash management and foreign exchange hedging businesses – both critical parts of its global banking and markets offering to corporate clients – remain the envy of rivals.
Nevertheless, the recent emergence of an anonymous letter sent to HSBC’s top brass lambasting senior figures in the GBM division has exposed deeper questions about its future.
HSBC’s problems in the unit don’t only concern its performance. I understand that the Financial Conduct Authority has commissioned at least one Section 166 investigation which encompasses aspects of GBM’s IT, systems and controls. And Thibaut de Roux "retired" as the head of markets last month, although insiders suggest there was more to his departure.
HSBC declined to comment on both these points. But they underline a perceived lack of management grip on the business, exacerbating the headache facing John Flint, the new group chief executive, as he weighs whether to back its existing investment banking model.
Some believe Flint will seek to close or sell parts of the GBM business in the next year, while others sense that the opportunity remains, with comparatively modest investment, to help it fulfil its elusive potential.
New hires, including the imminent appointment of former JPMorgan banker Greg Guyett to replace Westerman as co-head of global banking, may only serve to reinforce investor uncertainty about GBM’s direction – at least until there is a demonstrable and sustained climb up those all-important league tables.
And with parts of Barclays’ investment bank also under siege from the activist investor Edward Bramson, Flint’s decision on whether to commit more resources to GBM will have consequences for London’s long-term ability to boast a homegrown investment banking champion.
Mike Ashley vs the City
With a bulging waistline and even fatter wallet, there are few more easily caricaturable corporate bosses than Mike Ashley. A profound evangelism for the virtues of the City would certainly not form part of one.
The chief executive of Sports Direct has had an uneasy relationship with the public markets since floating the company more than a decade ago. His bizarre statement to the London Stock Exchange last month, in which he accused Sports Direct’s shareholders of "stabbing me in the back", may turn out to be a watershed moment – not only for him, but for institutions invited to back other companies with a dominant investor.
Ashley’s disregard for the views of City institutions is reflective of a wider disdain which risks incurring an ongoing cost to his business. Sources say that despite advice to the contrary, he has refused to back internal governance changes that would encourage the big four accountancy firms to tender for the role of Sports Direct’s auditor. With Grant Thornton due to hand over the reins next year, this accounting limbo is now causing anxiety among the retailer’s lenders, I’m told.
Perhaps Ashley simply doesn’t care. His cavalier approach to the affairs of other listed companies in which it holds stakes is said to have prompted Debenhams to seek legal advice about whether it can prevent him voting his shares against its disposal of Magasin du Nord, its Danish department store chain.
Yet Ashley is not quite the one-dimensional corporate monster his critics paint him out to be. In areas of boardroom reform such as the principle of electing a workforce member as a director, he showed an unlikely willingness to play the role of early adopter.
And while he makes an unexpected figurehead in the campaign to promote a shareowning democracy, Ashley deserves some recognition for Sports Direct’s equity participation plan for permanent employees.
The tycoon has nevertheless reached a point of no return in his relations with the City. He has the wherewithal and the inclination to take the company private. Failing to do so would add insult to institutional shareholders’ long-running injury.
How to finance UK Finance
Britain’s largest banks have become wearily familiar with loan write-offs in the decade since the crisis: few of them have related to their own trade association, though.
In a six-page memo circulated to the 300 members of UK Finance last month, chief executive Stephen Jones reported that the body’s nine founders (the likes of Barclays, Lloyds Banking Group, Nationwide and RBS) had agreed to waive half of a £15.5m advance provided to facilitate its creation.
Jones is confident that UK Finance can be run effectively while reducing fees by 7.5% in real terms over five years, with the deficit eliminated by revenue generated from training, events and associate members.
Yet with a no-deal Brexit looming, and a saturated industry agenda which requires sharp, effective lobbying, firms would be better off compromising on fees to ensure that Jones has the financial firepower he needs.
Mark Kleinman is City editor at Sky News