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Last year was always going to be one of transition for HSBC. The bank’s long-serving top duo – chief executive Stuart Gulliver and executive chairman Douglas Flint – both stepped down from the business.
Fortunately, the handover – to life-long insider, John Flint, as chief executive, and to the bank’s first-ever external appointment to a new role as nonexecutive chairman, Mark Tucker – was a great deal smoother than it had been when Gulliver took the reins seven years earlier.
Long-serving finance director Iain Mackay is also standing down, to be replaced by his counterpart at RBS, Ewen Stevenson.
John Flint has been dealt a relatively strong hand by his predecessor. It took Gulliver almost his whole tenure to wrestle HSBC into a coherent mix of businesses with a clear strategic focus. Tough decisions were made and some sacred cows sent to the slaughterhouse. Myriad businesses were shuttered or sold. Gulliver pivoted HSBC to its core franchises, notably in Asia. All of these decisions should stand John Flint in good stead.
But it left Flint with three problems to address. Firstly, as a relatively low-profile figure, who had grown up through HSBC, how would he forge his own personality within the bank and outside it among the industry and HSBC’s shareholders?
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Secondly and related to this, how would Flint differentiate the group’s strategy – as all new chief executives must do – when he had long been a key lieutenant of Gulliver, including a stint as head of strategy early in his predecessor’s reign? And thirdly, how could he execute the crucial pivot from a period of restructuring and consolidation to one of growth? Let’s review these in reverse order. Revenue had actually fallen in five of Gulliver’s seven years in charge as he closed down businesses and cut head count. So Flint delivered an early and important victory in the third quarter of 2018, when HSBC delivered a surge of 9% in revenues year on year. At the same time operating expenses fell 6.8%, helping to deliver a jump in profits of 29% to $4.2 billion for the quarter.
In the longer term, growth is to be delivered from an eight-point plan that Flint and Tucker presented to investors in June. The bank will continue its pivot to Asia, redeploying capital from areas with low returns on equity to those with higher ones, especially in the Pearl River Delta, where its majority-owned Chinese securities business is finally licensed and up and running.
HSBC will continue to tackle the bureaucracy that has long been one of the bank’s Achilles’ heels and will boost returns in a US unit that struggles to deliver any positive return.
This last commitment has raised some concerns; within the strategy is a plan to increase unsecured lending to US consumers and retain a commitment to US retail banking. The fallout from HSBC’s acquisition of Household Financial 15 years ago – and with it substantial losses in the US – remains one of the darker chapters in HSBC’s recent history, causing it to write off over $10 billion.
Wealth management has long been one of HSBC’s underperforming businesses, including when it was part of Flint’s purview. As chief executive he now intends to correct this, with a focus on Asia.
“We are going to build a leading wealth management business to capture the growing wealth in Asia,” Flint said at the investor day in June. He will hope the bank is not too late to that game.
This return-to-growth mode is how Flint is trying to define the terms of his tenure. But what about his own personal leadership?
Flint sent an internal video to all staff saying: “Some aspects of who we are, how we operate and how we behave are not great… The framework I want to have that conversation under is this framework of the healthiest human system.”
Such a system would not countenance vitriolic, personal and anonymous leaked internal memos attacking a senior member of one of the bank’s biggest divisions. But such a memo – from within and aimed at the Global Banking and Markets division – dominated the headlines about the bank towards the end of 2018 and added fuel to the fire that HSBC continues to underperform in some high-profile areas of global investment banking.
Perhaps Flint’s most important initiative is to invest $15 billion to $17 billion in growth and technology. The majority is expected to be channelled into technology, digitization and process improvement.
Until about five years ago, technology was a particularly weak spot at the bank. Under Gulliver it began to invest in technology across the consumer and wholesale businesses, and is increasingly a leader rather than a laggard in this area.
Accelerating those digital advances will be crucial to Flint delivering on his promises. For all the talk about why HSBC isn’t higher in the global M&A league tables, the bank’s real desire is to be part of the plumbing of its core clients, in areas such as payments, trade, foreign exchange, securities services and liability management. It already has the client base – good technology will help it do more for its clients.
In that way, Flint should be able to get to a group-wide return on equity of 11% by 2020. At that point, he might need to explain to investors why HSBC – with its focus on so many of the world’s fastest-growing economies – is only able to generate returns that are lower than other global banks of a similar scale.
But in his first 11 months in the chair, Flint has bought himself a bit of breathing room.
