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Best Emerging markets investment bank: HSBC |
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Also shortlisted: Citi, Deutsche Bank and Standard Chartered |
HSBC’s investment banking model is often misunderstood. Its fixed-income, currencies and commodities business is not in the same league, in revenue terms, as such rivals as JPMorgan, Citi or Deutsche Bank; its global equities business lacks scale; and it has never actively coveted a top-tier position in emerging market M&A and ECM across all regions.
In short, HSBC has never sought to build a conventional top-tier global investment bank. However, this strategy is deliberate. HSBC’s raison d’être is financing-led, focused on intermediating growing emerging market-focused trade flows and catering to rising corporate demand for sophisticated products and capital market solutions.
With conventional top-tier global investment banks grappling with the challenge of generating the revenue scale needed to achieve return on equity targets amid market and regulatory pressures, HSBC’s alternative and corporate-focused business model deserves credit. It has strategically beefed up its wholesale banking operation – transaction banking and custody services – to leverage client relationships, cross-sell investment banking products and to ensure emerging market-focused corporates invest in the HSBC brand at an early stage. Although rival banks such as Deutsche Bank and JPMorgan have adopted a similar strategy in recent years, HSBC’s first-mover advantage in emerging markets, notably Asia, is the key.
In recent years, HSBC has reported record revenues in Hong Kong, the broader Asia region and Latin America. Profit before tax in the global banking and markets division in 2012 was $8.5 billion, 21% higher than in 2011.
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| Samir Assaf, CEO of HSBC’s global banking and markets |
Samir Assaf, CEO of HSBC’s global banking and markets, says that while rival global banks are grappling with institutional shifts affecting FICC profitability, HSBC’s investment banking arm benefits from relative stability and boasts strong structural growth prospects thanks to growing trade flows and its balance-sheet strength – with its top-tier position in emerging market project finance evidence for the latter. “We have not positioned ourselves to be number one in the league tables in ECM and M&A advisory,” says Assaf. “The investment banking concept is increasingly about offering the best solutions – across products – and being a full-service provider to a deep, diversified and upcoming client base from a global perspective.”
In short, it’s high time to give HSBC the credit for being the leading agency player in emerging markets, driven by strong corporate relationships – across a healthy mix between FIG and corporate clients – with a captive, growing, ever-sophisticated and relatively unlevered institutional base, as well as strong retail distribution networks.
Although a portion of HSBC’s 2012 profit in its global banking and markets division was driven by foreign exchange – where it is growing volumes in Asia, central and eastern Europe, and the Middle East and north Africa – as well as funding to trading businesses, the bank boasts notable and, in some cases, underappreciated strengths in conventional investment banking businesses such as ECM, DCM and advisory.
Most clearly, in a bear market for emerging market equities and a bull run in emerging market debt issuance – reaching $1.29 trillion between April 2012 and March 2013 – HSBC’s natural global strengths in debt and lack of ECM cost base served it well. It has the most regionally diverse global DCM franchise, and has capabilities across more currencies than any other top-tier bank. In both Brazil and the Middle East, HSBC’s market share is roughly double that of Citi. HSBC remains, perhaps unsurprisingly, top in Asian G3 issuance, although Citi is increasing its market share.
What’s more, HSBC remains central to the growth of the burgeoning offshore renminbi market.
HSBC’s leading debt franchise ensured it retained its top place in MENA debt tables, while the bank played a key role in landmark ECM deals in the region, benefiting from a locally based sales and trading platform. In M&A, across emerging markets globally, HSBC’s traditional weak spot, the bank still notched up third place for cross-border emerging market-to-emerging market completed deals, highlighting its prowess in so-called south-south connectivity, behind JPMorgan and Morgan Stanley.
What’s more, HSBC has built up its ECM, M&A, and project and export financing capabilities in its Hong Kong franchise in recent years, ranking number one in IPOs, rights issues and equity-linked offerings over the awards period, while in M&A, advising on such landmark deals as Pacific Century Group’s $2.1 billion acquisition of the Hong Kong, Macau and Thailand insurance businesses of ING.
Beyond conventional investment banking businesses, HSBC remains the leading risk adviser in emerging markets, serving the needs of its corporate and institutional clients with the full gamut of standard and customized products. HSBC has successfully beefed up its strategic equity-financing group in Asia since 2009, providing it with a good opportunity to deploy its balance sheet and provide complex hedging strategies to its increasingly sophisticated client base.
HSBC has given itself an enviable platform by building a compelling investment bank business model that is cannily suited to evolving regulatory and market shifts.
