OREANDA-NEWS. HSBC's plans to further restructure its investment banking division suggest it is following a trend for European global systemically important banks (GSIBs) to operate capital markets businesses with greater focus on core strengths, says Fitch Ratings. Several European GSIBs' first-quarter results showed weak contributions from capital-markets activities, reflecting a challenging market environment, especially during the first two months of the year.

A drive to boost underlying sustainable earnings has forced European GSIBs to adopt leaner and more flexible business models to better deal with low growth, prolonged low interest rates, flat yield curves and mounting regulatory requirements. Most of the business model changes have aimed at building on key customer franchises, but tough operating conditions are now requiring additional adjustments to restructuring plans. Executing change in difficult operating conditions can be even more challenging for banks still implementing business model changes.

HSBC's acceleration of the transformation of its investment banking to bring it closer to its transaction bank, commercial, and retail and wealth management (RBWM) businesses is no surprise - we think that a bank will struggle to be successful if it does not have a leading position in its chosen business sectors or countries of operation. Our analysis of HSBC's business model breakdown is that pure investment banking contributes only around 10% of revenues, roughly in line with UniCredit, Santander, BBVA, RBS, BNP Paribas and Groupe BPCE. Clear market leaders, such as Barclays, UBS, Deutsche Bank and Credit Suisse, already dominate the European investment banking market, while HSBC's strength lies in foreign-exchange trading, particularly in Asia.

HSBC's investment banking business is consolidated in its Global Banking and Markets (GB&M) unit, which the bank aims to shrink to below a third of group risk-weighted assets from 41% at end-March 2016.

GB&M carries out limited trading but client flows, which contribute to the division's markets-driven results, can fluctuate, generating volatility in the division's results. The division also houses transaction banking for large clients and structured finance activities. There is overlap with the bank's commercial banking division (CMB), reflecting growth potential that differentiates it from other GSIBs.