Is HSBC Securities serious about the Canadian equity market?
Coming into this year, you would have assumed so. The local investment banking arm of the giant London-based bank boasted a decent share of TSE trading, with about 4 per cent of the institutional market.
The dealer also sported big mo - as in momentum - after playing a leading role in a string of financings. HSBC Securities raised money in recent months for Kingsway Financial, Intertape Polymer, WestJet Airlines and a handful of income trusts.
But in recent weeks, the wheels have come off the Canadian operation. Wholesale defections have come on the heels of global cuts in HSBC's pay packages.
The Financial Times reported last week that as part of an international cost- cutting drive, head office in London slashed or eliminated bonus payments to a worldwide work force of 2,700 in its equities division. Fixed-income and foreign-exchange experts, who apparently had a better year, didn't see the same cuts in their bonus pool.
In Canada, howls of protest from the ranks prompted token bonus cheques for players in the equity department. But the payouts were a thin gruel, with most seeing their take-home pay cut far more than the 30-per-cent to 40-per-cent fall in bonus payments seen in most shops.
So despite assurances that HSBC Securities is not quitting institutional equities, worldwide or in Canada, professionals are taking stock of the situation and deciding that fields are greener elsewhere. If HSBC management thought it could chop bonuses and not lose people because the Street is reeling, it was mistaken. Top talent can always find a new home. Only weak players stay where they're not getting paid.
This is a firm with a proud tradition. HSBC's local acquisitions include Gordon Capital -- once a TSE trading powerhouse. But over the past month, the ranks have been eroded by a steady stream of defections. It's now clear that unless the shop takes steps to address the holes in its ranks, HSBC Securities will become a shadow of its former self.
Here's a list of recent farewell parties that shows both foot soldiers and generals are departing:
Head of sales Brian McLaughlin simply quit this week, taking time off to consider his future.
Head of trading, John Esteireiro, who was with Gordon Capital, departed for CIBC World markets in February.
Sales desk veteran Jason Melbourne also left in the last few days. His mail can also be forwarded to CIBC World Markets.
Vancouver-based salesman Doug Gordon moved on, with no set plan on where he might end up. Mr. Gordon was a respected member of the Newcrest Capital sales team.
Trader Pat Maguire moved recently to the 'buy' side at hedge fund Banfield Capital.
Traders Perry Catellier and San Delaney can now be found at National Bank Financial, where they trade Canadian stocks with U.S. clients, a growth opportunity in the local market.
Now, you can make a business case for the concept that Canada's institutional equity market is mature and hypercompetitive, and therefore not the place a global bank would choose to allocate resources. HSBC Securities could justify a strategy that says it will shrink its local operation and favour other regions.
But to date, that strategy hasn't been articulated. HSBC Securities says it still wants to be a player in Canada. But the local team has been decimated by the worldwide cost-cutting exercise. The shop has seen morale plunge as veterans walk out the door. Rebuilding will be extremely difficult -- impossible if bonus cheques remain small. Coming off a strong year, and a strong tradition, it's all rather sad. Bell to ring up cash If investors can't get enough of income trusts featuring tinned sardines and Teenburgers, then selling a chunk of Ma Bell should be no trouble at all.
Bell Canada jumped into the red-hot trust market yesterday with an announcement of the first Canadian telecom trust, to be called the Bell Nordiq Income Fund. It's the company's latest stab at raising money by monetizing its utility businesses. Previously, parent BCE sold a 20-per-cent stake in Bell Canada to SBC Communications Securities for $5-billion, a deal that many still question.
On the income trust front, recent months saw the A&W restaurant chain and Connors Bros. -- the dominant player in sardines -- launch well-received financings that featured the promise of double-digit yields.
In the latest play on this theme, Bell Canada hopes to raise about $350-million from income-hungry investors by selling a 40-per-cent stake in two of its subsidiaries.
The Nordiq fund will acquire a stake in Telebec Limited Partnership, which supplies phone service in Northern Quebec, and Northern Telephone Limited Partnership, which does the same in northeastern Ontario. Bell Canada will retain management control over both companies with a 60-per-cent stake. The cash raised here will be used to pay down Bell's debt.
RBC Dominion Securities is leading the financing. National Bank Financial is the No. 2 player. That selection makes sense, given the shop's strength in the Quebec retail market, and the fact that a Quebec phone company is wrapped up in the trust. awillis@globeandmail.ca
Andrew Willis