HSBC has become the latest international bank to close its equities business in Thailand. The British bank is keeping tight-lipped about the reasons for the closure but the decision comes amid a continuing restructuring of its global equities business.

Indeed, the decision to close did not come as much of a surprise to rival brokers, who say that HSBC was never a significant player. Of the 36 brokerages trading on the Stock Exchange of Thailand HSBC ranked rock-bottom before it finally pulled the plug on the business on Thursday, making 15 staff redundant.

Nevertheless, broking is still good business for those players that remain committed. Market volume was close to $1 billion in 2003 and the index was the best-performer in the world, with brokers expecting it to rise a further 20% from the 2003 close during this year.

HSBC is not alone in shutting down its Thai equities business. Lehman Brothers and Merrill Lynch have both recently sold out of their local brokerage businesses and other international players have been scaling back.

A key problem for the global banks, says Bob McMillen at Seamico Securities, is the heavy retail element of the Thai stock market. "About 75% of our business is retail," he says. "So you have to be able to cover that segment. If you can't it becomes very difficult to make money because this is a pretty big market and research costs can be high."

For the likes of HSBC and other big banks retail business holds little attraction as margins get cut to the bone. Increasingly these banks are using their equities business to feed into capital markets work and to support derivatives operations and proprietary trading.

The dedicated brokerages in Bangkok couldn't be happier. "Although the market is down we're still looking for a very good year," says McMillen. "There's confidence in the new finance minister and the government will need to stimulate the economy ahead of the election next year, so it looks good. Particularly as the foreign banks are pulling out."

John Studzinski, HSBC's co-head of corporate and investment banking who joined from Morgan Stanley in June 2003, is steering the bank away from traditional agency broking towards a higher margin strategy focused on market-making and underwriting for big clients.

In its full year financial report released earlier this month the bank said, "Pressure on brokerage commissions and the likelihood of major structural change to the shape of the industry prompted us to reorganise our equities business with a significant reduction in headcount."

That significant reduction included the closure of the Korean equities business, the loss of 60 jobs throughout Asia and the culling of one-third of equities staff worldwide, reducing headcount to 1,000 employees. The plan now is to rebuild the group.

"Our revised business strategy, which fully integrates equities as part of our overall markets proposition, concentrates on areas where we have a competitive advantage," the report added.

HSBC's vast balance sheet is one such advantage. Instead of scrabbling around for dwindling broking commissions the bank is digging into its deep pockets to make cash from trading. So far so good; the bank's equities business made money for the first time in three years during the fourth quarter of 2003.