HSBC rolls out ECM masterplan

Danny Palmer joined HSBC in October 2004 as global head of ECM. His appointment further swelled the ranks of Morgan Stanley bankers poached by HSBC, which is striving to build up an investment banking business that can stand shoulder to shoulder with its highly profitable global markets business.

Palmer has based himself in Asia. In doing so, he has adopted a strategy already successfully deployed by his boss Mark Bucknall, who built up the bank's Asian and then global DCM business from Hong Kong before transferring to London to become head of global financing.

HSBC's ECM business today looks very similar to its DCM business five years ago.

At that point, the bank had been very successful at leveraging its Hong Kong lending relationships into US dollar bond mandates. What it did not have was a pan-Asian G3 franchise, nor the confidence of many regional issuers that it could place paper beyond the boundaries of its home market.

The second stage of the build-out was to leverage a couple of key regional relationships into bond mandates, particularly in Malaysia and the Philippines. Having demonstrated that it had global placing powers, the bank was steadily able to push its way to the top of the league tables across all currencies and all markets. In 2003 it was awarded FinanceAsia's Asian Bond House of the Year.

Palmer finds himself at this second stage. The bank has been successful at transforming its own equity investments into IPO mandates - Ping An and Bank of Communications being two recent examples. What Palmer now plans to do is broaden HSBC's franchise across the region and into more products such as convertibles. He himself has a longstanding reputation in this field and HSBC has a natural advantage given the strength and breadth of its balance sheet in the region.

As a first step, he has hired George Pavey as the bank's new head of Asian ECM. Pavey comes from Credit Suisse First Boston where, until last week, he was an ECM director covering Emerging Europe, the Middle East and the Iberian Peninsula.

Pavey will move back to Hong Kong from London in mid-April. He will report to Palmer and have a broad remit covering India, Asia, Japan and Australia. Having joined CSFB from UBS back in 1998, Pavey was first based in New York before moving to Hong Kong where he covered Taiwan, Korea and Singapore.

ECM and DCM at HSBC now fall under investment banking following a structural re-organization last year, which saw them moved out of markets, although there is still a revenue sharing agreement between the two. Globally, investment banking is run ex Morgan Stanley banker John Studzinski, with Stuart Gulliver overseeing global markets.

Under Studzinski, investment banking has been split into two divisions, with Robin Osmond appointed to run advisory and Mark Bucknall financing, which incorporates equity and debt capital markets. Unlike a number of other banks, ECM and DCM have not been fully merged, but work side by side with the benefit of a single reporting line that should bring some degree of cohesiveness to the overall unit.

The new financing structure has already been rolled out in the US and it can be seen taking shape in Asia too following the appointment last week of CH Bang as head of financing for South Korea. Bang, who was previously country head at Barclays, is viewed as a senior relationship banker, who can open doors for ECM and DCM bankers to follow. He will report to Stephen Williams, who has been running Asian debt financing and Palmer, who gains a regional role in addition to his global title.

Here Palmer discusses the bank's equities blueprint for the region.

Since you joined in October, you've made a number of hires across the globe.

Palmer: Yes getting the right senior people in place has been my main focus so far. These include Jim Rossman, who was hired from Lazard to run US ECM. He's a biotech specialist and that's going to be a focus for us in the US going forward.

In London, I hired Alex Caramella to cover FIG ECM and most recently a global head of syndicate, Paddy Burrowes. He comes to us from Deutsche, where he had a strong markets grounding as deputy head of European equity sales trading.

George is the last of these senior hires. The next stage will be to fill out the Asian team, but we intend to be selective. Hiring the right people will be key

How many people do you have in Asian ECM at the moment?

Eight including syndicate. I think you'll see us hire four to five more people over the next six months. Over the medium-term we'll probably add to the team further, but again we'll be selective.

Do you plan to run the group along sector or geographical lines?

Geographical. Hong Kong and China will clearly be a very strong focus given it's where we already have a solid reputation. But we also want to focus on new markets where we see a lot of opportunities such as Taiwan and Korea.

HSBC has a pretty good DCM platform in Korea that you can build on, but the bank's always been very weak in Taiwan.

We actually have a reasonable lending business in Taiwan and you're right we need to leverage this on the investment banking side now as well.

Do you plan to hire a convertibles specialist as well?

My philosophy is to originate and execute convertibles from within the group rather than to have a team within a team. George Pavey has a strong CB background and we already have Tom Lanners, who used to work for me at Morgan Stanley. We want to make sure we hire people who are fluent across the whole range of financial products.

In 2004, HSBC ranked ninth in Dealogic's Asian ECM league table raising just over over $2 billion. Do you think you'll make a better showing this year?

Yes we should be higher. We're actually mandated on two of the largest trades of the year for Bank of Communications and Cosco Container. But we're not expecting to jump to the top of the league tables immediately. I'm quite optimistic about the equity markets in 2005. Global markets have been a bit shaky recently, but it's refreshing to see activity across all countries and markets in Asia these days. It means that if one country goes quiet, it's balanced out by business elsewhere. For example, India has really come to the forefront over the past year and that's good for us as it's a country where HSBC has been historically very strong.

HSBC seems to have done well at leveraging its own principal investments into IPO mandates. How do you plan to move beyond this?

It's no secret that some of our larger mandates have been from companies where HSBC group has made strategic investments. However, by executing them well, we're demonstrating we have the capability to compete head to head with the best of our competitors

When you first moved out to run Asian ECM at Morgan Stanley, you developed quite a reputation for aggressively chasing business that shot the bank to the top of the equity-linked league tables in 2003. Do you intend to follow a similar course at HSBC?

Yes we'll be aggressive, but we won't be reckless. Any business we go after we'll need to be confident we can execute well.

You mentioned breaking into Korea and Taiwan. What about South East Asia?

That's an important area too. Our investment banking team, run by Tou Chen Chang, formerly of Citibank, has already had some success. We made a strategic decision to focus on the Reit sector a few months ago and we've already landed three to four good mandates in Singapore and Malaysia. It's a good example of what we can achieve. Our aim to is to increase our presence across the whole of Asia and start to print some interesting trades.