Morning Coffee: How HSBC plans to cut $1.5bn in costs without losing revenues. The $130k job that doesn’t require human interaction

Here’s an experiment – take a cup of coffee and put a teaspoon into it.  Then take the spoon out, and look at the surface of the coffee. That’s the kind of gap that senior bankers at HSBC leave behind when they’re made redundant, according to HSBC’s CEO Georges Elhedery and CFO Pam Kaur. Although the new top management are not scared of taking tough decisions and giving up on whole business lines – it now appears that equities sales and trading might, as expected by many, be given up along with capital markets outside Asia – there are plenty of cost cuts which are believed to have literally no revenue impact at all.

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Specifically, on yesterday's Q4 conference call, Elhedery set out where the next cost reductions were coming from:

“As an illustration, previously, every dollar of revenue we generated had at least two accountable executives at the Group Executive Committee. Today, around 60% of our revenue has a single accountable executive”

By taking out these senior executives (a process which HSBC is apparently calling “deduplication”), Elhedery aims to reduce global staffing costs by 8%, equivalent to $1.5bn a year after an initial $1.8bn of “severance and other upfront costs”.  Later on the call, Kaur made it absolutely clear that they don’t expect any revenue impact at all from doing this, “because it's literally more senior roles, deduplication, simplifying the matrix”.

That’s quite a lot to take in, when you think about the implications.  Both the savings and cost-to-achieve appear to be entirely related to personnel costs.  So what HSBC’s top management are telling us is that under every top management team before this one, they have more than a thousand people who have been generating absolutely nothing.

What makes it even more shocking is that most of the executives targeted for “deduplication” are very unlikely to have thought of themselves as passengers.  Quite the opposite – they were accountable for revenue! It’s just that somebody else was accountable for the same revenue, and that HSBC is no longer prepared to accept a form of arithmetic in which one plus one equals one.

People in the market are likely to be sceptical of these claims.  Most obviously, the “deduplication” principle seems to very much depend on HSBC being able to accurately identify which of every pair of executives actually does generate the revenue and which one is free-riding. And things which look like “waste” and “duplicated effort” in one set of market conditions have a habit of revealing themselves to have been “margin of safety” and “strategic flexibility” when things change. This why HSBC had such a comprehensive matrix structure in the first place.

But, of course, the main reason that people in the market may not want to listen to Kaur and Elhedery is that they don’t want this sort of thinking to take root.  If every bank starts looking closely at the extent to which multiple employees are laying claim to the same sets of revenues, where will it all end?

Elsewhere, there’s apparently as much as $30 an hour to be earned by working in “annotation” for AI companies, fact-checking the output of models, and labelling data for training purposes.  The work is apparently “mind-numbing”, but it’s fully remote, with no meetings and flexible hours.

How does this compare to being a junior banker? The per-hour pay is reasonably similar (if you were to work the standard 85-hour week, 52 weeks a year, that would be $132,600). The perks seem comparable – no free food, but no compulsory in-office days and no dress code.  Mind-numbing work is the same on both sides. 

So it all comes down to how you feel about personal contact.  The job is described as “perfect for an introvert”, which seems a bit understated as there is no human interaction at all.  If you regard that as a more horrifying prospect than having to deal with a grouchy MD, then you’re probably best off staying in banking. And taking this news as yet another lesson to never try to convert an Analyst salary into an hourly wage, as the consequences of doing so are always depressing.

Meanwhile …

It might have been thought that this is not exactly the greatest time to be marketing an ESG specialist.  So spare a thought for Evercore, who have been asked to explore market interest in CCLA, the asset manager of choice for churches, charities and local authorities. (Financial News)

Why are IPOs so weak this year, after all the optimism? Maybe all the things that Jamie Dimon, Peng Zhao of Citadel Securities and other market commentators said last year about the attractiveness of public markets were true. (FT)

RBC has hired Timothy George (a 40-year veteran, most recently working at Lazard) to be vice-chair of its consumer and retail investment banking team.  It’s also brought in Amil Melwani from BMO as a Managing Director. (Bloomberg)

The old proverb “a principle isn’t a principle until it’s cost you money” continues to have a clarifying effect.  KPMG USA is the latest firm to remove all DEI reports from its website and announce the end of its programme aiming to increase the number of partners coming from under-represented groups, as it wants to keep its US government contracts. (FT)

If your MD seems unusually grumpy this week, it may be because they’ve just seen a school fees bill. Elite New York private high schools are now charging just under $70,000 a year (although there is financial aid available for families which only earn $100k). (Bloomberg)

Bill Ackman is close to completing his takeover bid for Howard Hughes Holdings, which he wants to convert into a Berkshire Hathaway-style conglomerate investment company. Howard Hughes was, of course, a widely admired business innovator who later in life drew attention for his increasingly bizarre public statements and his political views, while Bill Ackman … is a hedge fund manager. (Investors’ Business Daily)

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