HSBC has hired Keith Chan from Macquarie to help achieve its goal of becoming a top issuer of warrants and callable bull-bear contracts (CBBCs) in Hong Kong.
Chan, previously head of warrant sales at Macquarie in Hong Kong, will be responsible for leading the bank's Asian listed product business, which falls under the wealth management sales team headed by Ken Sue. However, Chan will report to Gary Hung, head of intermediaries for North Asia.
The listed product business has not been a strong area for HSBC in Hong Kong since it set up the warrant team in 2005. According to market rumours, the bank's strategy of focusing on smaller names in the warrant market, such as Huiyuan Juice, led to some big one-day losses last year after the underlying stocks shot up in price.
Now, the bank aims to compete with the dominant warrant houses on blue-chip names, and the hire of Chan, who is credited with helping Macquarie grow its Hong Kong warrant business, is a good fit, says a rival banker. Chan succeeds Frank Wong, who left HSBC earlier this year and is now at Barclays Capital.
"Keith's appointment demonstrates our commitment to developing a leading platform for our warrant business in Hong Kong," says Sue.
Asked whether it has changed strategy in its warrant business, HSBC said in an email that it "has been aiming to provide clients with warrants of a comprehensive range of underlyings, which includes blue-chips as well as mid-cap companies".
The bank is also a relatively small player in the CBBC market, which has boomed in the past few years and is now even bigger than the warrant market. After the collapse of Lehman Brothers, the spike in volatility made warrants of all types more expensive and much less attractive, so Hong Kong investors turned to CBBCs, which were first launched in June 2006 and accounted for less than 1% of daily market turnover as recently as 2007.
Today, $6.8 billion of CBBCs are traded every day in Hong Kong, while warrants account for another $6.5 billion daily. Between them, they represent more than a quarter of all equity market turnover.
The quick rise in the popularity of CBBCs caught some banks by surprise. HSBC didn't really kick-start its business until last year, when it captured 1.83% of the turnover. It has improved slightly so far this year, with 1.97% of turnover from 136 issues. In total, the issuing banks have sold 5,750 CBBCs this year -- already more than a third higher than the full-year total for 2008.
Catching up with the big players will be a challenge. UBS already has more than half the CBBC market, and Deutsche Bank and Societe Generale have close to a quarter between them. The same banks also have a strong foothold in the warrant business.
And HSBC is not the only bank aiming to win a bigger share of the pie. J.P. Morgan has also hired two new staff for its warrants team: Grace Wang, a trader from UBS, and Chiane Wong, a marketer from Calyon.