International -- Finance: BANKS
WE'RE AN INVESTMENT BANK, TOO...NO, REALLY (int'l edition)
Even though Hongkong & Shanghai is the world's seventh-largest lender, its investment bank is a 90-pound weakling. A hodgepodge of companies with different names, the investment bank is a niche player in Europe and has a minuscule presence in the U.S. It's not in the top 10 in global equities, bonds, or mergers and acquisitions.
But now, HSBC Holdings PLC is rushing to get its investment banking act together. For good reason: A worldwide consolidation has separated investment banks into two groups: powerful global players and smaller specialty houses. The company is determined to be in the top tier, but it's playing catch-up against powerful U.S. institutions and a newly invigorated corps of European lenders that are swallowing up Britain's independent merchant banks.
The investment banking campaign is being led by Bernard Asher, 59, a 15-year veteran who is moving to unify his far-flung units under one name--HSBC Investment Banking Ltd. Some observers think the deep-pocketed company will achieve its goal. Says Lawrence Miao, chief financial officer of Hong Kong-based Hopewell Holdings Ltd.: "Once these guys get focused, they're a big army."
A NEW YORK BUY? With a sharper focus, the bank expects to attract the biggest spenders in business today--international corporations and governments looking for a single banker to manage global distribution of debt or equity. But Asher is up against the likes of Goldman Sachs, Merrill Lynch, and Morgan Stanley, and he's fending off Deutsche Bank, ING, and Swiss Bank, which are plunging into investment banking as well. Still, Asher thinks that HSBC, with its abundant capital and worldwide network, stands more than a fighting chance. "This is an industry that is being changed by the ability to straddle the world and the ability to handle information," he says. "He who will succeed will have global reach, a record of implementing technology, and a large enough size to take risks."
Asher started putting his units under one flag in February, when Wardley, a merchant bank HSBC started in 1972 to aid Asian entrepreneurs, became HSBC Investment Bank Asia. Next could come James Capel & Co., a 1986 acquisition, and Samuel Montagu & Co., inherited after HSBC's 1992 acquisition of Midland Bank PLC. Eliminating their separate identities could alienate longtime clients, but Asher may do so anyway.
On Wall Street, where its investment bank is weakest, Hongkong is awaiting approval from the Federal Reserve to underwrite debt and equities. Peter Letley, one of the investment arm's deputy chairmen, says the Fed's O.K. would let HSBC acquire an existing U.S. investment firm, if it wanted to. But is it in a buying mood? "I certainly wouldn't rule it out," hints Letley. Even if the company doesn't pursue such a purchase, Letley promises that it will keep up the fight in New York. "We aren't out to be as big as Merrill Lynch," he says, "but we want to take business from them."
EASTWARD TURN. A sea change in the nature of the British securities trade, meanwhile, is forcing the bank into a strategic shift in London. As the City consolidates, James Capel, Britain's largest stockbroker, is being hit by the disappearance of orders from independent merchant banks. So Asher is giving the go-ahead for Capel to move into market-making for the first time. This will turn the brokerage firm into a Wall Street-style securities house, using capital to build inventories of shares.
Above all, Asher wants the investment bank to turn eastward. He thinks the balance of power in investment banking will shift toward Asia as the region's growing body of entrepreneurs--many of them already his clients--starts putting together blockbuster deals. If that happens, and HSBC's investment bank is ready, maybe Asher's efforts will finally be rewarded.By Paula Dwyer in London, with Pete Engardio in Hong Kong