HSBC may increase bonuses. Hong Kong bankers may get them

HSBC results are out. After what the bank describes as a “strong” third quarter in which profits across the bank rose 32% as a more “simplified and agile” HSBC emerged, HSBC is considering increasing bonuses. Based upon Q3 results, lucky bankers and traders may receive them.

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Revenues in HSBC’s Hong Kong corporate and institutional bank (CIB) rose 24% year-on-year in the third quarter, versus a paltry 6% increase in the non-ring fenced bank in the UK where the London bankers and traders sit. Revenues in the Middle East, excluding Saudi Arabia, fell 2%. Profits in the Hong Kong CIB were up 70%, versus a drop of 5% in the UK once unusually high costs relating to last year’s restructuring are removed.

HSBC has indicated that it will be paying bonuses proportionate to performance now that it's liberated from the EU bonus cap. Last year, the average bonus for its material risk takers was $819k. This year, CFO Pam Kaur said the bank is considering increasing variable pay (bonuses) if strong performance continues. Pre-tax profit in the CIB is up 16% year-on-year across the first nine months as a whole. 

Kaur said that the bank's surprise decision to simplify itself by pulling out of M&A and ECM in Europe and the US and to focus on the Middle East and Asia is going well. “We are working around on around 70 live IPO mandates, of which more than 40 are in Hong Kong, and with over 25, we have a sponsor role,” she declared.

HSBC doesn’t break out performance in fixed income and equities sales and trading, or the performance of M&A, ECM or DCM bankers. Excluding FX trading, which has been shunted into wholesale transaction banking, sales and trading revenues at HSBC were up an impressive 69% in Q3. Investment banking revenues rose by a less impressive 12%, what with European and US banking closures last year.

Kaur said HSBC won't make a final decision on higher bonuses until January. When she does, who will get them? Maybe FX traders, whom Kaur says have been thriving in the transaction bank, where FX revenues rose 19% in Q3. Maybe Hong Kong bankers with all their mandates. Maybe Hong Kong traders. Maybe people in financing and prime broking, whom HSBC said are thriving with "increased volumes and wider margins”. Maybe even bankers and traders in London and the US. On a nine month basis, profit growth at the US CIB has outperformed the other regions and the Middle East and Asia don't look quite so impressive. 

Last year, there was some whinging from HSBC employees about the allocation of bonuses in London. There were also job cuts a few weeks before bonuses were announced. HSBC's London bankers and traders also like to complain that costs are disproportionately allocated to their entity.  

HSBC hasn’t finished cost cutting. It still plans to cut $100m of costs in the fourth quarter. Once that's done, it will have finally achieved its $2bn annualised target. Hooray.

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