Daniel Palmer, the global head of HSBC’s capital markets group, has left the bank as part of an internal shake-up, just three years after he was poached from its rival Morgan Stanley.

It is understood that Mr Palmer and HSBC negotiated the departure and that the former star banker will not be replaced.

Mr Palmer was hired in 2004 by John Studzinski, who was then co-head of HSBC’s investment banking division and responsible for growing the business in order to be more competetitive against Wall Street heavyweights such as Goldman Sachs and Morgan Stanley.

However, despite a string of high-profile hirings, including that of Mr Palmer, Europe’s biggest bank has failed to make its mark. Mr Studzinski left the bank last year to join Blackstone, the American private equity group.

Mr Palmer was in charge of HSBC’s equity capital markets, encompassing IPOs and share issues, and its debt capital markets divisions.

Under the new structure, Spencer Lake, the head of debt capital markets, will report directly to Mike Powell, who is head of global markets and was Mr Palmer’s former boss. Paul Hand and Robin Phillips, the two co-heads of equity capital markets, will report directly to global banking.

Signs of a strain in the relationship between HSBC and Mr Palmer came last year when the bank hired Kevin Adeson as its head of leveraged and acquisition finance but did not have him report to Mr Palmer, who ran the debt business globally.

“There has been a parting of ways and a difference of opinion about how to manage his area,” a source said.

A spokesman for HSBC yesterday confirmed Mr Palmer’s departure and reiterated the bank’s focus on its traditional strengths of emerging markets and financing. “We never wanted to be a Goldman Sachs or a Morgan Stanley,” he said.

Pretax profit at HSBC’s investment bank fell 7 per cent to $4.6 billion (£2.33 billion) in the second half, the company said in March.

However, there are signs that its increased efforts to gain a bigger slice of the lucrative M&A financing market are beginning to pay off. According to the financial data provider Dealogic, HSBC ranks sixth in the European leveraged and acquisition finance league tables, up from eleventh in 2006 and fifteenth in 2005.

It has been involved in several big deals recently as lead finance arranger, including Macquarie Bank’s £8.2 billion acquisition of Thames Water, First Group’s purchase of Laidlaw, the Greyhound bus owner, and Kohlberg Kravis Roberts’s $29 billion acquisition of First Data. The bank ranks just eighteenth in global equity underwriting this year, according to Dealogic.

Mr Palmer’s departure comes as HSBC is reeling from a record $10.6 billion bad debt charge in its troubled American sub-prime mortgage business. That prompted HSBC to issue the first profit warning in its 142-year history.

Mr Palmer, who is based in London, could not be reached for comment.

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