Equities trading slump deepens at HSBC

The HSBC logo tops a skyscraper that houses the HSBC global headquarters in London's Docklands business district

HSBC HQ at Canary Wharf

Revenues from equities trading, which struggled during the first three months of the year, ended June around 50% below their year-ago level, after what group chief executive Stuart Gulliver described as a “difficult half” for the business.

HSBC’s interim results for the six months to June 30, published on August 3, showed that pre-tax profits at HSBC’s global banking and markets division had fallen 16% from a year earlier to $ 4 billion.

Revenues from the markets – or trading – business did regain some ground in the second quarter, having been 19% behind 2015 levels at the first-quarter stage. By the end of June, the unit’s $ 3.6 billion in revenues were just 14% lower than a year earlier, with the rates desk maintaining growth and the credit business staging a turnaround.

Credit revenues had trailed year-ago levels by 37% after the first quarter, but ended the first half 6% up at $ 506 million.

But HSBC’s equities business ensured the bank’s markets revenues overall remained down year-on-year. Equities revenues had been down more than a third at the end of the first quarter, and ended the first half down 46%.

Adjusted revenues at the overall global banking and markets business for the first half were 11% lower than in 2015.

Gulliver said in a message alongside the interim results: “Global banking and markets weathered a large reduction in client activity in January and February, but staged a partial recovery in the second quarter.”

He said that foreign exchange, like equities, had had a difficult first half-year, while rates performed well thanks to higher client activity.

Gulliver said that cutting $ 48 billion of risk-weighted assets over the first six months of 2016 – roughly half of which came from GBM – had helped leave the bank on track to hit the top end of a $ 4.5 billion to $ 5 billion cost savings target for 2017.

In a statement accompanying the group results, HSBC chairman Douglas Flint said of the challenges the bank faced in the first half: “Concern over the sustainable level of economic growth in China was the most significant feature of the first quarter and, as this moderated, uncertainty over the upcoming UK referendum…intensified.”

He added that the half ended with “exceptional volatility” as markets reacted to the result but that HSBC had emerged from the period “securely”.

While he said that nothing during the first half had cast doubt on the bank’s strategy and priorities, he said: “Re-positioning our own European business once the future of the UK’s current ‘passporting’ arrangements for financial services is clarified in the upcoming negotiations will add to the very heavy workload already in place to address the regulatory and technological changes that are reshaping our industry.”

Flint noted that the process for the UK to negotiate trade terms with the rest of Europe and other nations would be “complex and time-consuming,” and called for “calm consideration” of the issues and “careful assessment” of how both the UK and Europe could ensure prosperity and growth. Flint cited the importance of an open trading relationship being at the heart of the new ties between the UK and EU, and the rest of the world.

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