Chairman Stephen Green is so keen to convey the message that HSBC is not turning its back on London that he repeats it six times in 45 minutes to the reporters sitting across the table from him at HSBC’s tower in Canary Wharf. The bank’s chief executive, sitting next to Green, insists that HSBC will continue to compete hard with European banks.
But in the next breath Michael Geoghegan admits that it will compete hardest with them in Asia, as weakened western banks retreat from international expansion in the aftermath of state rescues.
This trend has been clearly visible since the start of the year when Citi announced its intention to sell Japanese brokerage Nikko Cordial and RBS put up for sale various Asian retail and commercial banking businesses acquired from ABN Amro. Bank of America and UBS have sold stakes in Chinese banks that, before the western banks’ recent troubles, they had characterized as long-term strategic investments.
In August, in a report on the impact of the financial crisis on Asia, the Bank for International Settlements pointed to evidence of the withdrawal of international banks in the precipitate decrease in cross-border loans to Asian countries with large financial sectors, notably Singapore and Hong Kong, as well as to Korea and Malaysia. These even exceeded outflows of traditionally more volatile portfolio capital.
The fact that Green and Geoghegan join the roundtable in virtual form via carefully positioned screens, while both are sitting in Hong Kong, underscores the message. HSBC’s decision to relocate the group chief executive’s office back to Hong Kong is more evidence of the trend to deglobalization.
HSBC has always been an Asian-focused emerging markets bank. The shift of its headquarters to London in 1992 in the first place was merely the price demanded by the Bank of England for graciously allowing it to rescue the broken Midland Bank at a time when HSBC was hedging its bets ahead of the return of Hong Kong to China in 1997.
Having spent more than 10 years either side of the 1998 Asian crisis rebalancing its exposures towards developed markets through the acquisitions of Midland and Household, HSBC now once again sees the bulk of its earnings and the best growth prospects in the emerging markets and especially Asia.
If there is any surprise in the announcement of its chief executive returning to Hong Kong it is only that the chairman is not catching the same plane with him. The bank pats itself on the back for making a clearer separation of chairman and chief executive by assigning more responsibility to Geoghegan for developing the group strategy he himself has to implement. Gossips say the two men don’t get on particularly well in any event.
Geoghegan officially takes up his new place in February 2010 along with 15 or so office staff and strategic planners. It will be interesting to see how he splits his time between now and then. It’s a reasonable bet that much of it will be spent in Asia.
In August, HSBC raised its stake in Bank Ekonomi in Indonesia to 98.96%, completing what began in May with the $607 million cash acquisition of an 88.89% stake. The deal doubles its presence in Indonesia, the world’s fourth most populous nation. And it follows acquisitions last year in Vietnam and India, as well as in Taiwan in December 2007, all made as crisis engulfed the world banking system.
The retreat of western banks opens up more opportunities for a strong bank to seize right now. These will not all come – might not even predominantly come – through mergers and acquisitions. Grabbing them from customers aghast at the retreat of international banks makes it urgent for HSBC’s top management to be on the ground close to the action.
There is some urgency for HSBC. It is hardly alone in spotting the shift in the world’s centre of economic gravity from west to east. As western banks appear to recover from their near-death experience, some might seek to revive plans for Asian expansion and throw into reverse the recent retreat from emerging markets. To pick just one small example, Natixis, one of the French banks worst hit by the structured credit collapse, quickly decided to pull back from Asia. Now Laurent Mignon, the new chief executive appointed in May, is telling analysts that the search is on once more to find a good way to be present in a high-growth region.
Not all banks have retreated. Preliminary Dealogic third-quarter core investment banking revenue rankings in Asia-Pacific excluding Japan show UBS in top spot for the year to September 23, Deutsche Bank second, up from eighth in 2008, and JPMorgan third, up from fifth in 2008. Citi has fallen from fourth to seventh.
The BIS report shows that the decline in loans to Asia from UK- and US-headquartered banks was at its sharpest a year ago now, in the fourth quarter of 2008.
The scene is shifting quickly in global banking. HSBC’s long-term commitment to Asia was never in doubt. It might have only a short window of opportunity to press home its competitive advantage.
For HSBC-watchers, almost more intriguing than Geoghegan’s no-brainer move back to Asia is the succession race beneath him between executive directors Stuart Gulliver and Sandy Flockhart. Flockhart, based in Asia, will now run personal financial services and commercial banking globally in a career path that almost mirrors that of John Bond in the 1980s and early 1990s. The addition to his portfolio of group service functions including technology, operations, marketing and human resources rather takes the gloss off this.
Gulliver looks to be in the ascendant. The head of the group’s profitable global banking, markets and asset management businesses now becomes chairman of Europe and the Middle East, giving him oversight of retail businesses that he will need experience of if he is ever to become chief executive. He is handed private banking to boot.
But his staff and supporters should not take it for granted that he is next in line to become chief executive. “Never assume,” Green warns.
