HSBC will Replace its head of Investment Banking

HSBC plans to replace the head of its investment bank, who has long held the position, before a major restructuring that will result in the loss of large-scale jobs, in the unit he led for almost 10 years.

It is expected to Samir Assaf, head of global banking and markets, be transferred to a non-executive position in the division, as part of a series of changes in the management team of the group, as interim CEO Noel Quinn leaves his Footprint in the bank, according to people who have information on the matter. HSBC declined to comment.

Changes at the executive level could be announced later this year or early 2020 before Quinn presents a new strategic plan in February to try to revive the bank after years of disappointing results.

Assaf, 59, took office in December 2010 and became one of the heads of a global investment bank with the longest term in office. In 2017, he described himself as “the last man standing” in the industry, after several of his contemporaries, such as Anshu Jain, at Deutsche Bank, and Rich Ricci, at Barclays, left their posts.

The Assaf movement comes at a tumultuous time for HSBC, which in August dismissed its executive director, John Flint, after being in office for only 18 months because he had lost the confidence of the Board of Directors, which includes President Mark Tucker.

Quinn announced that it wanted to “remodel and reconfigure” the bank last month after it revealed a 24% reduction in quarterly profits and abandoned its main profitability objective. Earlier that month,  Financial Times reported that 10,000 jobs are in jeopardy with the review.

Noel Quinn, who became the interim executive director of the bank in August, is the only internal candidate to fill the position permanently, although HSBC is also engaged in the search for external candidates.

The executive restructuring foreshadows an important revision of HSBC, which could result in the loss of thousands of jobs, many of them in the Assaf division, as the bank, which focuses on Asia, tries to drastically cut costs and reduce its exposure to markets and businesses with low returns.

The magnitude of turbulence in investment banking in Europe reflects a torrid period for the industry, which struggles to compete with American rivals such as JP Morgan and Bank of America since the financial crisis. Some banks decided to withdraw from investment banking areas that were once considered essential, as did Deutsche Bank, which recently abandoned stock operations.

“Definitely, Samir will be replaced and the successor will have to take an ax to the division,” said an HSBC advisor. “Samir is close to retirement age and this job is two to five years old,” he added.

Some of Assaf’s colleagues had wondered if he had the appetite to reduce the unit he developed for almost a decade. However, by transferring him to a non-executive position, the bank hopes to help his successor carry out the restructuring.

BVA follows HSBC and BNP as its subsidiary deteriorates

European banks have long looked in the mirror of their rivals in the United States to underline the greater profitability enjoyed by the sector on the other side of the Atlantic. However, the banking business in the US also has its weaknesses, as demonstrated by the negative accounting adjustment announced Thursday by BBVA  for its North American subsidiary, which represents the third most important market for its income statement behind Spain and Mexico.

The Spanish bank has become the third in Europe to be forced to assume a deterioration in the goodwill of its US subsidiary. Before him, BNP Paribás and HSBC reported losses in their US businesses after applying a similar accounting procedure ( impairment test ) that they perform each year.

In the case of the entity that chairs Carlos Torres, the negative adjustment has been worth 1,500 million dollars (about 1,348 million euros).

An accounting change that has been announced a few days after the Federal Reserve decided to keep interest rates in the range of 1.5 to 1.75% at its last meeting of the year.

Before starting 2019, BBVA Research had anticipated that the Fed would undertake three years of interest rates this year. Far from this projection, the Federal Reserve has lowered rates in 2019. Against the 2.5% in which they closed 2018, this exercise will say goodbye at 1.75%.

A decision communicated to the markets by its president, Jerome Powell, which has been applauded by Donald Trump – who would have liked even a major reduction to boost the US economy – but has not held the bank.

Less GDP growth
The economic slowdown of the first world power has been behind that decision to lower rates this year against expectations just a few months ago. In this section, BBVA’s study service forecasts are also eloquent to what extent tensions over the trade war have damaged its economy.

Compared to the growth estimated by BBVA Research for 2019 of 2.8%, the year is now expected to close with an increase of US GDP of 2.3%.

Worse still is the picture that is drawn for 2020, year for which growth of 2.5% had been foreseen that has now been cut to 1.8%.

A weakness of the economy that is impacting the income statement of the European entities that have opted to grow in the US. 

The loss of profitability of its business in the United States was one of the elements that undermined the results of the British bank HSBC in the third quarter . The financial colossus recorded a 24% drop in its profit between June and September and announced deterioration in its goodwill within some other measures, including spending cuts.

A cost adjustment that also stalks BBVA, an entity that, like all European banks, is bound to improve its efficiency and reduce costs.

Last year, the entity enjoyed in the US the effects of Trump’s tax reduction and the good progress of credit investment in the US with a growth of 7.4%. Two factors that were key to achieving a result in the full year of 735 million euros. 

In the income statement this year, the US will weigh as a slab due to the impact of the 1,500 million dollars (about 1,348 million euros) that will have to be noted for this deterioration. This is an important impact on the valuation of its subsidiary, which exceeded 5,000 million.

However, this consolidation will not affect the dividends committed, nor the capital of the bank, BBVA said to calm investors.