HSBC Plans Third Overhaul in a Decade With Investors Seething

LONDON (Capital Markets in Africa): For HSBC Holdings Plc’s frustrated shareholders, time is running out on Chairman Mark Tucker’s mission to deliver.

The former insurance executive, who arrived in 2017 after making his mark in Asia, is set to roll out a top-to-bottom overhaul of the sprawling lender after two post-crisis resets and his first pick as chief executive officer flopped. Costs remain too high, red tape is too thick and not enough businesses generate adequate returns, analysts, investors and executives say.

“This is one of the last shots they have on a generational basis to reorganize,” said Joseph Dickerson, an analyst at Jefferies International who wants to see an attack on costs “that are trapped from administering a string of sub-scale businesses.”

The to-do list is likely to include cutting equities trading and jettisoning units in Turkey and Oman — possibly even combining the global corporate and investment bank– people familiar with the matter say. The 237,000-person workforce will shrink, with Dickerson predicting a writedown of about $4 billion. The heart of any turnaround will be squeezing more out of Asia, source of 90% of HSBC’s profit.

As Asia has boomed, the institution born the Hongkong and Shanghai Banking Corp. in 1865 has idled. Shares of HSBC, Europe’s biggest financial company by market value, have declined since the start of the last decade. In contrast, JPMorgan Chase & Co. has more than tripled.

Doubts
“Its unlikely investors will buy into” the restructuring without “something very dramatic,” said Eric Moore, a portfolio manager at Miton Group in London. “HSBC has presented many strategic plans: why is it supposed to work this time?”

HSBC’s biggest market is suffering through serial crises — democracy protests in the former colony and coronavirus in the mainland. Steve Eisman, the money manager famous for his bets against the U.S. housing market before the 2008 meltdown, said he’s short HSBC and its U.K.-based rival Standard Chartered Plc, citing their exposure to a Hong Kong economic slump. But as geographical expansion has failed to move the needle, HSBC’s likeliest move is to double down on Asia.

“In the coming years, China will continue to grow in geopolitical and economic weight, and open up its markets to foreign companies and investors,” Tucker said in a Jan. 30 London speech, whose attendees included Beijing’s ambassador to the U.K. “After more than 30 years living in Asia, I know that many things are best expressed by thousand-year-old Chinese proverbs. The Chinese proverb that best comes to mind is: ‘Every door is an entrance as well as an exit.’”

HSBC declined to comment for this article.

Pearl River Delta
HSBC has been funneling even more resources to Asia, especially China, since 2015 in a strategy initiated by former CEO Stuart Gulliver. John Flint, who was abruptly ousted as CEO last year, promised to pour as much as $17 billion mainly into the Pearl River Delta and improving technology.

The 2020 iteration may channel more resources to Singapore to bolster its Asian presence without greater exposure to China. Whatever the strategy, the execution could remain a handicap because interim Chief Executive Officer Noel Quinn is hardly a lock to see it through.

That Quinn’s own role remains up in the air confounds some analyst predictions in recent months that he was the obvious pick for CEO. A January board meeting held in Dubai decided to keep open the search process, according to people familiar with the meeting.

Tucker, who has said the hunt for a CEO could take as long as a year, wants to appoint someone with a broad mix of experience, including a background in asset management and investment banking. In contrast, Quinn has been a commercial banker for the past two decades. Tucker feels under no pressure to make an appointment and could insist on taking the full 12 months to find a replacement, said a person familiar with his thinking.

Reshuffle
Steven Bird, who left Citigroup Inc. last year where he had been head of its global consumer banking division, is among the external candidates mentioned to possibly upset the coronation of Quinn as CEO.

While Quinn, 57, moved out three senior managers in December, a new reshuffle was announced Wednesday. Stephen Moss, group chief of staff, will fill a position as head of Europe, Canada, Latin America, and the Middle East. Nuno Matos, formerly head of HSBC Mexico, will oversee Europe day-to-day, reporting to Moss; Matos replaces James Emmett, who retired.

The executive facelift could accompany a wholesale reorganization. The most extreme plan under discussion would combine parts of the commercial bank with the unit that houses the investment bank, say people familiar with the work.

Quinn, who has led HSBC since John Flint’s abrupt exit in August, is resisting the idea, telling colleagues it could prove too disruptive and drive away clients.

As those units employ 93,305 people — more than the total headcount of any other U.K. bank — HSBC could extract significant savings there, the people said.

Another radical move on the table would see HSBC cutting equities sales and trading, which are deemed not crucial, people familiar with the matter say.

Write-down
After unloading businesses in more than 20 countries in the past decade and putting its French bank on the block last year, HSBC is again looking at retrenchment. Operations in Germany, and smaller countries, such as Turkey and Oman, are likely targets, the people said.

The retrenchment would result in a write-down that runs into the billions. “We are carrying a decent amount of goodwill against parts of the European business in particular,” Chief Financial Officer Ewen Stevenson said in October. Jefferies estimated a fourth-quarter charge of $4 billion.

The looming job losses are having the expected impact internally. Even the communications department, charged with promoting management’s message insider and outside the bank, is having trouble keeping a still upper lip.

In a message to the 447-person communications department staff last month, Steve John, HSBC’s recently installed chief communications officer, wrote a lengthy message to his team saying that a survey of the unit’s staff was “not good” and spoke of the need for “dramatic improvement in many areas.”

“It’s clear that there’s uncertainty about our future. Fewer of you feel proud to work for HSBC, or would recommend it as a great place to work, than six months ago,” wrote John. “We are going through a period of transition as a group, and this uncertainty is a cause for concern.”

Source: Bloomberg Business News