Is HSBC too big to manage?

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And a scoop: Two Wall Street asset managers have emerged as final bidders for Brighthouse Financial, a life insurer viewed as a crown jewel for firms looking to boost their profiles in the private credit industry.

In today’s newsletter: 

• Rearranging the HSBC empire 

• Private credit’s big potential tax break

• European banks face deal threats

HSBC: can ‘the world’s local bank’ adapt?

HSBC chief George Elhedery is among the dozens of banking leaders over the past two decades who have been tasked with reining in the ambitions of a global financial behemoth.

But DD’s Ortenca Aliaj dissects whether the Lebanese-born banker can succeed in a detailed Big Read on the bank.

He’s faced with cutting one of the world’s largest banks down to size, a mission that a long line of predecessors at HSBC (and rivals such as Credit Suisse, Deutsche Bank, Barclays and Citigroup) have struggled to pull off in recent decades. 

HSBC under Elhedery is contending with two core problems.

To begin with, HSBC has admitted that its non-Asian investment banking operations are simply not lucrative. 

On top of that, HSBC is especially vulnerable to rising US-China tensions and President Donald Trump’s unpredictable tariff regime, given its position straddling Asian and western markets, with its most prominent being China. 

HSBC has struggled as a global bank, but it also hasn’t been dealt a shock to its system that had forced it to pursue a major reorganisation.

Elhedery has already got a head start: he has withdrawn the firm’s investment banking operations from the US, UK and Europe. Inside the bank, many concede the move was necessary.

“We’ve done two equity deals outside of the Middle East and Asia and we had a couple we were working on. That’s it,” said one senior executive inside the bank. “Yet we had dozens of people and they all got paid seven figures and we haven’t made any money there, ever.”

But can HSBC realistically step out of banking while also providing financing to the fast-growing private capital industry?

“If you are providing leverage to private equity firms, you need an investment banking presence,” said the person, who called Elhedery’s plans “totally unrealistic”.

The tensions underscore the challenges ahead for Elhedery, even as he moves more decisively than his predecessors. 

And it begs the broader question: Can HSBC grow its revenues with a footprint tied to geopolitically volatile Asian markets and, as the “world’s local bank”, weather a significant disruption to globalisation?

Trump <3 private credit

Buried deep within Trump’s landmark tax bill is a small provision that could provide a boon to the private credit industry: about $10.7bn of tax cuts through 2034.

But as Republicans in the Senate race to get the law to the president’s desk, there is a fierce debate in Washington over whether the provision should ultimately stay in Trump’s “big, beautiful bill”. 

The proposal would limit taxes on dividends paid to investors in so-called business development companies (BDCs), one of the primary investment vehicles utilised by the private credit industry. 

In the industry it’s known colloquially as “Reit parity”, given real estate investment trusts were granted the tax cuts as part of Trump’s 2017 tax bill.

Managers of BDCs are after those same tax breaks, hoping they would make their funds look even more appealing to retail investors.

The terms were included in the tax bill that passed the US House of Representatives, Congress’s lower chamber, last month, reports DD’s Eric Platt. 

And while it was left out of the Senate’s draft version, it could be added back in the coming days amid fierce lobbying over amendments to the final version, said people familiar with the deliberations.

Republicans who crafted the legislation in the House were “persuaded” that the breaks would help “promote capital formation”, according to one person briefed on the discussions around the bill. 

A second person said that while the Senate finance committee debated the measure, it was killed after some lobbyists sought to expand the tax breaks to other fund structures. As the price tag rose, the Senate dropped the provision, they added.

But it could still be added back in a narrower scope.

Debate over tax breaks for private credit funds comes as Republicans consider massive cuts to services for the poorest Americans. The bill is also expected to swell the country’s deficit, with the Congressional Budget Office warning it would add $2.4tn to the US debt by 2034.

“This is what armies of lobbyists and an infinite arsenal of political donations get you,” Elizabeth Warren, the Democratic senator from Massachusetts, told Platt. “Private credit companies don’t need a tax break — working people do.”

Italy’s banking deals face new threats

For the uninitiated, dealmaking among Italian banks has become a complex sport. 

The starting gun seems to have been fired by the Italian government in November when it offloaded a 15 per cent stake in Monte dei Paschi di Siena, the world’s oldest bank, which was nationalised in 2017 after it ran into trouble. 

Among those who bought shares were Banco BPM; Delfin, the holding company of the billionaire Del Vecchio family; and Italian tycoon Francesco Gaetano Caltagirone.

Talk quickly turned to how MPS could perhaps come to rival Intesa Sanpaolo and UniCredit as a financial force in Italy, possibly through a merger with BPM. 

But not to be left out of the action, UniCredit’s Andrea Orcel made a €10bn bid for BPM shortly after the sale and later MPS launched a €13bn bid for Mediobanca. 

Mediobanca had plans of its own: it plotted a €6.3bn takeover of rival Banca Generali.

But the Italian government’s 15 per cent share sale has now come under scrutiny by Milanese prosecutors and the European Commission, with some investors claiming that they were shut out of the bidding process. 

At issue is whether the deal, which was advised by Banca Akros, a subsidiary of BPM, was a fair negotiation. Banca Akros says it was. 

But it’s hard to shake some irregularities. 

The Italian government had previously used seasoned investment banks such as JPMorgan Chase and Jefferies to run the process. It was the first time Banca Akros had acted as a sole book runner in a multibillion-euro deal.

That the shares were allocated to its parent company, which the Italian government had hoped to merge with MPS, and influential tycoons seemingly in favour of such a deal, also looks odd notwithstanding the 5 per cent premium paid. 

Among the investors who had been interested in buying up shares in MPS was UniCredit, which having failed to do so launched its unsolicited bid for BPM. But it’s facing stiff opposition from the government.

Job moves

• Latif & Company has appointed Michael Mire as senior adviser and advisory board member, according to a memo seen by DD. He joins from Aviva and before that worked at McKinsey.

• Raymond James has hired Franck Portais as managing director and head of France, based in Paris, in a new expansion of its investment banking presence. He joins from Alantra.

• White & Case has hired Laura Kayani and Nick Matthew as partners in their London office. They join from Ropes & Gray.  

• Leerink Partners has appointed Eric Stewart to senior managing director in its new London office. He joins from Lazard. 

Smart reads

America-Made Mobile The Trump Organization has tapped a wireless company to power Trump Mobile’s “Made in America” device, the FT writes. The president’s family business won’t settle for less than 100 per cent America made, but at what cost? 

LoveFrom, OpenAI An ex-Google executive told the FT he was blindsided by the collaboration between OpenAI and Sir Jony Ive’s LoveFrom. The two have since pulled down their ads due to a restraining order.

Beat the dealer Do you have a talent for mental maths and the audacity to risk getting kicked out of a casino? If so, take a lesson in how to count cards from hedge fund manager Boaz Weinstein, Bloomberg reports.

News round-up

Spain blocks BBVA from merging with Sabadell for at least three years (FT) 

Adani announces up to $100bn investment and shrugs off US charges (FT)

‘Quality is key’: Delphine Arnault opens a new chapter at LVMH’s Dior (FT) 

China’s wealth fund pulls plug on $1 billion private equity sale (Bloomberg) 

Europe’s €14 trillion defence tab needs private capital, Carlyle says (Bloomberg)