It’s been a pretty awful year for HSBC, and 2019 is not ending on a high. News has surfaced that long-serving head of its global banking and markets (GBM) division, Samir Assaf, is to be replaced.
No official announcement has been made, and yet the lack of denials from the bank confirm the story to be true.
It has caught almost everyone on the hop. Only a very few people inside the bank know that discussions are even taking place. The last thing HSBC needs is a leak at the top. Its management has plenty else to worry about.
Little more than two years ago Assaf was seen as a potential successor as chief executive to Stuart Gulliver. He reportedly had some big names among the old guard backing his candidacy. He lost out to John Flint, who was unceremoniously jettisoned after 18 months in the job. At least Assaf is likely to be moved to an unspecified advisory role.
His looming job-downsizing creates quite a mess for HSBC. It currently has an interim CEO, Noel Quinn, parachuted in from his role running the bank’s important commercial banking business (CMB). That means CMB has its own interim head, Barry O’Byrne.
Now it also has a lame-duck head of GBM.
Not a good look
If Assaf is to be replaced from outside the business, he’ll have to stay on as an interim head of the business until such time as his replacement is sourced and has completed their gardening leave. So HSBC could end up in a situation where at group level, two of its three key business lines (the other is retail banking and wealth management) will be operating under temporary leadership.
That is not a good look for a globally systemically important financial institution. Regulators may have concerns.
It’s probably not a situation that shareholders will enjoy much either.
Internal replacements for Assaf are not immediately obvious. Senior bankers once prominent within the division, such as Matthew Westerman, Robin Phillips and Thibaut de Roux, have all departed under a cloud over the last two years.
The current respective heads of the banking and markets divisions globally, Greg Guyett and Georges Elhedery, are relatively new to their roles and, in Guyett’s case, new to the bank.
What will Assaf’s eventual successor inherit? In short, a decent business that has stalled recently. For much of Assaf’s tenure, HSBC bucked the trend among non-US wholesale banks by improving revenues, returns and market shares in most of its core businesses, spurred on in particular by booming markets in Asia, its de facto if not official home.
From the time Assaf took control of the division from the promoted Gulliver in 2011 through to 2018, GBM delivered compound annual growth in revenue of 4% and profit before tax of 8%, all on substantially reduced risk-weighted assets (down 21% over the same period).
From 2014 to 2018, it increased market share in all products and all geographies.
But GBM went into reverse this year. Markets have been tough for everyone, but HSBC has underperformed. In the second quarter of this year GBM produced revenues down 13% year on year, and PBT down 44%. In the third quarter, FICC and equities businesses both declined by more than 20% year on year.
The always-charming and super-smart Assaf might not have displayed it publicly, but he was clearly going to come under pressure. He might enjoy the irony in the fact that HSBC’s constantly underperforming equity capital markets business is rather having a moment – the only true international lead on the Saudi Aramco IPO and a lead bank on Alibaba’s Hong Kong listing, the two biggest deals of the year – just as he us stepping down.
It won’t be easy to move the dial on GBM.
One radical solution would be to bite the bullet and merge GBM with CMB to create a full-scale wholesale bank more in line with competitors.
One radical solution would be to bite the bullet and merge GBM with CMB to create a full-scale wholesale bank more in line with competitors. That could allow all coverage to be brought together and enable mid-office functions to be run more efficiently.
It would create some upheaval and need a strong leader. Quinn would be the perfect candidate, if he were not otherwise engaged.
Chairman Mark Tucker needs to take action now to remove the sense of a bank in limbo. Quinn is expected to announce a big strategic overhaul of the business in February next year. He’ll likely focus on cuts to GBM, on changes to European banking, and on what to do in the US.
He might also turn his attention to the UK, where HSBC commits a lot of capital to mid-market, local companies that don’t fit its global profile.
By the time he makes that announcement, he needs the word ‘interim’ to have been removed from his title. At the moment HSBC appears to be lost in transition.