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HSBC Earnings: Dealmaking Rebound vs Trading Slump | Deep Dive

The HSBC global banking and markets unit has recorded a 10% drop in profit during Q3 2023.

HSBC Headquarters in Canary Wharf. Photo: Shutterstock
HSBC Headquarters in Canary Wharf. Photo: Shutterstock

Despite a rebound in investment banking fees, a decline in trading business negatively impacted the bank.

HSBC’s markets and securities services unit saw a 6% drop in revenue to $2.2bn, mainly due to a 13% dip in the foreign exchange unit.

Conversely, HSBC’s capital markets and advisory unit witnessed a 40% increase in revenue compared to its competitors, amounting to $254m.

Its investment bank specializes in debt underwriting, which has rebounded due to a lack of merger and acquisition deals worldwide.

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Deutsche Bank also reported a significant rise in investment banking fees during Q3 2023 mainly thanks to a levitated leverage finance segment.

The bank is mulling over raising bonuses for certain staff this year after its strong performance, and due to the removal of the cap on banker bonuses by UK regulators.

The move comes alongside a 1% increase in costs to $8bn during the Q3 2023 with higher performance-related pay and investments in technology being cited as the main drivers.

However, overall pre-tax profit of $7.7bn was below the market expectations of $8.1bn.

Most large investment banks have struggled against an ongoing slump in deal fees, which has continued to weigh down trading revenues at Wall Street and European firms.

HSBC’s UK rival Barclays experienced the largest decline in dealmaking fees among banks reporting Q3 2023, with a 30% slump. Morgan Stanley posted a revenue decline of 27%, while Goldman Sachs, JPMorgan, and Bank of America, all had small year-on-year falls.

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Meanwhile, Citigroup was the only US bank to report an uptick in dealmaking fees. It saw a surge of 34% during the third quarter.

CEO Noel Quinn remains positive amid the profit pressure, stating, “We have had three consecutive quarters of strong financial performance and are on track to achieve our mid-teens return on tangible equity target for 2023.”

Despite uncertainties within the industry, HSBC plans to leverage experienced leaders such as its seasoned investment banker, and remain committed to providing expert advisory services to its private equity clients.

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