HSBC has begun the year with a new management team for its German investment banking operations tasked with the challenge of improving its fortunes in a market where it has struggled to meet its potential.
In January, the bank appointed Alexander Glawe and Jürgen Stein as co-heads for HSBC Corporate Finance & Capital Markets in Germany, replacing Jan Masek who is leaving the bank and Ralf Neuhaus who is moving to become a vice chairman for Germany in April. The bank has also hired Heiko Mittelhamm from Barclays as head of M&A for Germany.
Glawe and Stein both joined in 2018 and their background is in sponsor coverage and leveraged finance, which are core to HSBC’s corporate finance offering.
This new team, overseen by Nicolo Salsano, who runs CIB for Germany and joined from Credit Suisse at the same time of Glawe and Stein, has the job of trying to haul HSBC up the investment banking league tables.
While its core debt capital markets and commercial lending businesses are strong, HSBC has failed to make an impact in corporate finance. The bank is yet to report for 2019 but in its annual report for 2018 it said that revenues in it German global banking and markets fell by 34%. In 2019 the bank did not feature among the top 10 fee earners in corporate finance of M&A, according to full-year league tables from Dealogic.
The underperformance comes as HSBC’s interim CEO Noel Quinn is preparing to announce an overhaul of its global banking and markets operation on February 18, and is widely expected to wield the axe in continental Europe.
Sources say that HSBC has already begun gently restructuring its German operation. The bank hires some of its analysts on short-term contracts that in the past have been rolled into permanent ones. Since the end of last year, HSBC has stopped this practice in some areas and juniors are now looking for new jobs.
HSBC is one a group of banks in Germany to hire some of their juniors on Tarifverträg –employment contracts that are negotiated by collective bargaining between trade unions and the bank's management. These contracts are less lucrative than the ones offered at U.S. rivals and while they enable HSBC to keep control costs, they also mean that the bank does not offer the best incentives.
As HSBC flounders in the German market, other banks have been more successful. “HSBC and BNP Paribas began expanding in Germany around the same time, and many assumed HSBC would win, but it hasn’t turned out that way,” said one rival banker. BNP Paribas was ranked 8th by fees in Germany last year.
The assumption that HSBC could succeed in Germany appears to have been based on the fact that HSBC Germany boasts a long-standing presence in Germany dating back to 1785 and until recently operated as HSBC HSBC Trinkaus & Burkhardt AG. HSBC Germany is a listed company which is 80.7% owned by HSBC and 18.7% by German Landesbank Baden-Wuerttemberg (LBBW). However, the arrangement means HSBC does not exert full control and there are instances where the German operate on separate IT platforms from London. To add to the sense of separation, HSBC’s German investment banking operations are based 228km from Frankfurt in Düsseldorf – leading rivals refer to HSBC’s strategic conundrum as ‘The Düsseldorf problem.'
Under new plans, the bank is keen to relocate some of its investment bankers to Frankfurt with aim of achieving an even spread between the two locations. The new team is expected to bring impetus to the investment banking operations of a firm that has punched below its weight in Germany. But perhaps the bank should be bolder and look at a full buyout of its subsidiary, something that has been discussed in the past. HSBC declined to comment.
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