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A prop-trading master class

Placing balance sheet management inside HSBC’s global banking and markets division presents Stuart Gulliver with a rather odd problem.

Last year the activity brought in revenue of $5.4 billion, up from $3.6 billion in 2008 and $1.2 billion in 2007. It is by far the biggest revenue line among the 13 separate businesses that HSBC reports inside global banking and markets. Gulliver now has to explain to shareholders why a decline in revenues in the next couple of years at his most profitable division will be a sign that he is doing a good job.

When Euromoney sits down with Gulliver he has just returned from a couple of days of meetings with investors and looks rather tired. If his audience has been grumpy at his message, he has at least learnt patience in how to explain it.

Having lots of liquidity is now considered by regulators and investors to be a good thing. HSBC’s conservative loans to deposits ratio means it has tonnes of the stuff. Right now, with rates so low, it’s tough to make any money from it. HSBC shareholders have benefited not just from the stability of having lots of liquidity but also from decisions taken three years ago about how to invest it.