Morning Coffee: Bloated bank discovers it has far too many staff. And when bosses try to wriggle out of paying bonuses
Some things are big because they are complicated, and some things are complicated because they are big. HSBC is both, and trying to get a handle on that complexity and its cost implications has been a graveyard of many CEO ambitions over the last two decades. Interim CEO Noel Quinn and recently-appointed finance director Ewen Stevenson have decided to attempt to climb the mountain – in the knowledge that to do so is effectively to bet your career – and they seem to have uncovered a particular structural quirk. It’s not so much the headcount that’s the problem at HSBC, as the deputy-headcount.
According to people who have spoken to the FT after being briefed on Quinn and Stevenson's plan, it focuses on the matrix management structure introduced by former CEO Stuart Gulliver. That structure was brought in to solve HSBC’s historic problem, the lack of central oversight of its international subsidiaries that resulted in disasters like the Mexican money-laundering scandal. But the network of national fiefdoms was not so much eliminated as overlaid with a network of regional fiefdoms, which was in turn overlaid with a network of global business line fiefdoms.
Since HSBC operates in sixty countries worldwide, the potential for duplication and triplication is significant. In the words of an unnamed HSBC 'insider-working-on-the-plans': "You have for every business line a global head, regional heads and country heads in 60 countries, many of them doing the exact same work. And then all of them have their own bag carriers, their own heads of finance and comms, and so on.”
Tackling something like this is tricky, because you need to fire a lot of people, and, unusually for a major cost-cutting program, it will not be easy to identify the people who need to be fired. There aren’t a lot of obviously damaged franchises or impaired business lines, and the individuals concerned won’t necessarily be doing a bad job. They might be performing perfectly well, according to the objectives and targets they were set. The only thing wrong with them is that they are too many in number.
So if you’ve got three or four senior people in a role that really needs one, then you have two problems. First, picking the right one to keep. And second, trying to make sure that the whole business doesn’t erupt into a disastrous firestorm of office politics as the whole executive team tries to make sure it’s not them that gets fired. Added to which, there’s the complication that Mr Quinn is still only the interim CEO and while he is being increasingly tipped for the permanent role, the board may be tempted to bring in an outsider who might have a different plan. Be kind to your friends at HSBC over the next twelve months, they are likely to be under quite a lot of stress.
Elsewhere, the London version of the AIG bonus litigation is heading to the Court of Appeal this week, as the company continues to try to avoid paying out on the deferred compensation plan for AIG Financial Products. The company has lost this one once in the High Court, and recently lost a French version of the same claim. A lot of the legal argument seems to have turned on the fact that AIG executives were of the opinion that the whole company was so disastrously bust as to render all deferred comp irrelevant, plus the bailout was incredibly unpopular and made even more so by the bonus controversy. And so there was never any particular thought given to the exact language of the contracts written with AIG-FP employees. But ten years later, and in a somewhat different political environment, it’s no longer quite so obvious to the courts that “people were yelling at us” is a reason to default on an obligation.
Roger Jenkins had a meteoric rise from counter staff to the head of structured capital markets? And he worked 17 hour days from 6am to 11pm? These exciting details came out during cross-examination in the Qatar court case and well, maybe. On the first, it’s likely that all this means is that he joined the graduate program at a time when all new trainees were expected to spend some time in the branch network. And on the second, FIG banking guys often have an expansive definition about what counts as “working”, including lots of drinking coffee and gossiping time. The long hours will have prepared him well for doing business in the Gulf, though; it seems that one of the frustrations of doing business in Doha was the endless waiting around for the client to decide he could be bothered to meet you. (FT)
According to “investment bankers cited by Fox News”, Goldman Sachs is planning a transformational acquisition, either E-Trade or US Bancorp. One might think that if you’re advising on a deal of that size, you probably shouldn’t be blabbing about it to Fox News, and indeed “Both deals, however, are still speculation at this point, and people familiar with the matter say there are no formal discussions inside Goldman to mount merger talks with either party”. (Business Insider)
Apparently if you’ve been through the Chinese college admissions test, the CFA exams seem like a holiday (Bloomberg)
Does your commute seem a little less crowded? A bit easier to get a table at lunch? According to Coalition, the investment banking workforce has dropped below 50,000 individuals. (Financial News)
Goldman Sachs is increasing its equity research coverage universe by 20%, although it’s noticeable that the bank employs many fewer star equity analysts than you’d expect given its size and profile (Integrity Research)
A sympathetic profile of Stefan Hoop, the right hand man of Christian Sewing and his continued high ambitions for Deutsche Bank’s transactions business (Euromoney)
Lack of sleep causes anxiety, among the many other bad effects. Unfortunately, anxiety (including anxiety about not sleeping enough) also causes lack of sleep. (BPS Digest)
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