HSBC’s Restructuring Takes Shape Under New Leadership
A little over a year ago, HSBC’s CEO Georges Erhedery revealed a significant restructuring initiative: merging the commercial banking and global banking operations to form a formidable financial entity. Now, with most of the integration wrapped up, HSBC’s new corporate and institutional banking division emerges as its largest arm, featuring a balance sheet nearing $600 billion. Mr. Elhederi has emphasized his intention to leverage this resource fully.
Michael Roberts, also known as Elhederi, an American banker brought in to oversee the transformation, mentioned to the Financial Times that he plans to employ “every acronym I can throw at you.” This remark referred to various financial instruments such as collateralized loan obligations and credit default swaps that allow banks to distribute debt, subsequently freeing capital for more loans by reducing the capital burden from loans.
The strategy relies heavily on the unyielding demand from large private credit firms, like Apollo Global Management and Blackstone, for loans generated by banks. Additionally, HSBC’s own wealth management division is set to be a significant participant in these transactions, aiming to finalize its $4 billion investment in a private credit fund.
In an interview at HSBC’s Canary Wharf headquarters, Mr. Roberts candidly remarked, “Honestly, we’re a bit behind the times.” He explained that the bank continues to build the essential infrastructure that will ensure a continuous flow of deals for investors.
Over the past year, Mr. Roberts has worked to merge two historically separate banking sectors within the organization. As the new CEO of the unified group, he oversees HSBC’s payments, trading operations, and the markets division, which are managed by Manish Kohli, Vivek Ramachandran, and Patrick George, respectively.
Roberts also currently manages a scaled-back investment bank after the cessation of mergers and acquisitions and equity advice in regions like the U.S., U.K., and Europe—a move he described as necessary for refocusing on growth markets such as Asia and the Middle East.
As part of the restructuring, he and his team have improved business structure, altered reporting teams, set revenue standards for relationship loans, and started tracking revenue globally. “I think some were surprised by how quickly we acted… Speed isn’t typically associated with HSBC,” he noted.
Roberts believes this newly combined business gives HSBC the edge to compete against major players like JPMorgan Chase, with a robust balance sheet of around $4 trillion compared to HSBC’s $3.2 trillion in areas like payments and transaction banking. They aim to establish themselves as the world’s top corporate and institutional bank.
Yet, historical challenges persist as merging teams with differing expertises often complicates the process. While commercial banking, known for fostering strong relationships with businesses, reported profits of around $12 billion by the end of 2024, the banks’ profit in global markets is anticipated to be about $7 billion, primarily serving large corporations’ debt needs.
A former executive at HSBC pointed out the difficulty of appointing only one leader to handle two distinctly different sectors, where the skillset required for engaging long-term clients sharply contrasts with pitching to capital market clients.
Roberts, who joined HSBC from Citigroup in 2019, is actively working to debunk the myth that merging these two businesses was impeded due to cultural differences. “There was a perception we couldn’t unite due to significant cultural hurdles,” he stated. “We are one bank; resistance arose because some people struggled with the integration.”
This partnership is central to Mr. Elhederi’s cost-saving strategy, predicting annual savings of about $1.5 billion for shareholders, although it came with job cuts, particularly among higher-level staff.
Roberts remarked on the redundancy and inefficiencies that had built up over time: “Forming two organizations… accumulates excess staff and costs, creating inefficiencies.”
Because the restructuring has fragmented the business segments, quantifying job cuts from reported numbers is complex. However, it’s noted that the corporate and institutional bank has diminished its managing director count by roughly 25% and now employs about 46,000 individuals, as per sources familiar with the situation.
HSBC has not commented on these figures, promising updates during its annual results in February. However, the job cuts and rapid integration are affecting employee morale. “We’ve never done something this extensive, and it happened quickly,” Roberts acknowledged. “Gaining acceptance can often take time, and it’s frustrating.”
Mr. Roberts held several town hall meetings last year to address employee anxieties about losing the bank’s identity but has come to terms with the reality that some team members remain resistant. “We’re not a massive investment bank. We remain 99% a corporate commercial bank. That hasn’t changed,” he concluded.
