Morning Coffee: HSBC's secret rationale for its brutal job-cutting method. BlackRock's big man and the 100% writedown

When HSBC suddenly announced earlier this year that it was closing its M&A and equity capital markets businesses outside of Asia and the Middle East, it caused a commotion. It was a "crazy" move, said one senior banker. It made no sense: "We've had a good year," said another. As a result of the cuts, revenues from HSBC's combined ECM, DCM and investment banking business are down more than 50% this year compared to last. Multiple longstanding managing directors have been removed.  

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But there was method in the madness. HSBC insiders said in June that many of those who were extracted from their jobs were earning "seven figures" while doing nothing much. Now, HSBC insiders have told the Times why the bomb was dropped in the way it was. 

By suddenly signalling to swathes of senior people that they were unwanted, insiders say that Georges Elhedery, HSBC's newish CEO, took the politics out of the process. “He talked about the way cost-cutting had been done at HSBC in the past, which was often that people protected their own personal fiefdoms. Whereas what he did was take out a lot of senior people and so cut costs relatively quickly,” one insider said of Elhedery's alternative approach.

Now that all the senior bankers collecting seven figures but doing no deals have suddenly disappeared, HSBC is reinventing itself in the style of a Wall Street bank, says The Times. There are new senior management training sessions. There's a new senior management mantra: "think customer, deliver value; simplify to amplify; challenge, align, commit; see it through, make it happen; great leaders build better leaders; create excitement, inspire ambition."

If you can remember this, you'll be in with the new crowd at HSBC. Not everyone is convinced, though. When the ex-Citi corporate banker leading HSBC's investment bank tried to create excitement and inspire ambition at a town hall presentation in June, attendees posted laughing emojis as a result. 

Separately, Phil Tseng at BlackRock has the sort of job that everyone would have liked three months ago. Tseng, who is a graduate of both Harvard College (Economics) and Harvard Business School (MBA), is BlackRock's co-head of US private capital, a role in which he is reportedly busy "originating, and executing investment opportunities." 

One of those opportunities involved Renovo Home Partners, a home improvement company which BlackRock invested in last year. Renovo was all about dream bathrooms and windows, until it filed for Chapter 7 bankruptcy last week, with $100m+ in liabilities and assets of less than $100k. 

Bloomberg notes that BlackRock held $150m of Renovo's debts, which it valued at 100 cents on the dollar only a month ago and then cut to 0 cents on the dollar last week. Tseng has therefore been deployed to discuss what's going on. Renovo's issues are "company specific" and related to "performance and liquidity," said Teng. They are not a reflection of "broader sector weakness," he added. Hopefully he won't have to contradict this next month. 

Meanwhile....

Rokos Capital Management has returned 20% this year. (Financial News) 

Stifel is still hiring for equities after cutting equities jobs in April. (Global Trading) 

Houlihan Lokey hired Seran Ahmetrasit from Jefferies as head of infrastructure debt advisory for Europe. (Financial News) 

Instead of guaranteeing a $10 million payout, some funds are letting PMs keep 100% of the first $10 million in trading gains. (Business Insider) 

ANZ Group has cancelled more than A$30mn ($19m) of executive bonuses after its bond trading scandal. (Financial Times) 

It's not easy being a mid-market British bank like Peel Hunt. “When profits collapse, there’s no bonus pool and you risk losing your best people. That’s the bigger concern,” says a rival. (Bloomberg) 

Laura Sterner resigned last week as head of BD in Citadel's Global Equities unit after only two months on the job. (Business Insider) 

Deserv, an Indian wealth management company, has decided that it doesn't need to hire experienced people and can just hire juniors and train them using AI instead. "Most of our competition are spending massive amounts on hiring experienced relationship managers and private bankers, which is costly.” (Bloomberg) 

Life as an intern at Enron: "Enron became very successful at something (gas trading) and as an organization it extrapolated that success could be achieved in anything it set its mind to. This enabled two classes of behaviors, each feeding on the other. First, an entrepreneurial hypertrophy, and associated excess risk taking: every new idea should be pursued, because it was new. Second, controls and processes were seen as obstacles." (ByFire) 

Those who started regularly having heavy drinking sessions in their late teens and twenties were later found to have higher levels of education and income compared with those who had abstained or drank very little. "There is a correlation. The statistical findings are quite strong, so clearly significant.” (The Times) 

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