Investment banking: DNA in the USA
For a non-US bank to be a success in the US, it has to get its ambitions right first.
Assuming your bank is doing OK, do you think that’s because of its people or because of its platform?
It’s an awkward question.
Egos being what they are, it can be hard for people at a place dependent on platform to admit that the people are not the differentiator – unless they are perhaps one of the people that built the platform.
Of course the reality is that most places are a combination of both factors. But it is also clear at most places which of the two factors is the leading one. A boutique advisory firm generally suffers from key-man risk a lot more than a big universal bank.
Those are the extremes, but the important thing is to recognize which bucket your firm generally falls into, or at least where it sits on the spectrum. Doing so means you are more likely to make sensible decisions about strategy.
Sometimes a firm can jump from one bucket to the other, but not often. And you can bet that clients will know perfectly well how they see you, even if you are in denial about it.
I was mulling this when thinking this month about how HSBC is approaching corporate and institutional banking in the US these days. The bank has had a chequered history there, not least when John Studzinski was trying to build a classic investment bank back in the early 2000s.
It did not work, and part of the reason was surely the hubris of failing to understand that that kind of approach was simply not in the bank’s DNA. Of course there are plenty of potential cock-ups in traditional banking too; HSBC’s issues with Household are testament to that.
But now the US strategy is more realistic and, because of that, it might just work. It is built around two pretty simple pillars. First, an ability to lend in size, backed by the bank’s impeccable counterparty strength. Second, its extraordinary reach into all the nuts and bolts of what global corporates need: FX, cash management, all that kind of stuff.
What it is not trying to do is to be a pure advisory shop for US clients, or even a dedicated DCM and ECM house. It’s not that it can’t or won’t provide those services, but they must make sense in the context of the heart of the bank’s offering.
What does that mean in practice?
Well, there are not that many banks left – particularly non-US ones – that can stump up massive chunks of the bridge loans that US corporates need to tide them over while they sort out capital market financing for their jumbo M&A activity.
Fortunately, that should work out pretty well for a bank like HSBC. If you are one of the non-US banks that can chip in on sizeable financings for a US corporate, then you can count on getting a good piece of the capital markets takeout economics, even if that’s not what’s leading your pitch in the first place. US corporates want diversification, so the attraction of a non-domestic firm that can give you what you need is obvious.
And they will reward you for it – it might be a passive bookrunner role, but who’s complaining, when you’ve got it through being able to put your balance sheet about? And you still get your handy league table credit either way.
What is interesting about the way that HSBC is going about things is that the current CEO, Stuart Gulliver, hails from a GB&M (HSBC’s investment banking division) background. But rather than be swayed by the ambition of wanting to be another Goldman, he is instead giving the firm the confidence to play in the IB world when it makes sense, but not when it doesn’t.
Cross-selling from the corporate bank to the investment bank has borne rich fruit for the Asian operation under regional GB&M head Gordon French. There is no reason to suppose it won’t do the same in the US, particularly as Asian clients do more there.
The other pillar of the strategy is, if anything, even more important. HSBC’s key selling point is its global network of services that fall outside the sexy world of IB. Being able to offer supply-chain finance for a US client in Saudi Arabia is not something everyone can do. It makes a lot of sense to build a franchise around this kind of connectivity.
It’s not that the people don’t matter, or that they are sub-standard at HSBC. It’s more about recognizing what a firm’s strengths are and not getting caught up in an ego-led desire to lead with the flash stuff. As HSBC’s Asian experience has shown, get the basics right and a profitable chunk of that work will come your way over time anyway – and not just in one region.
If HSBC sticks to its formidable bucket, then it might just make a success of the US at last.