|View the Euromoney 25|
Up in the heir
It’s been a pretty awful year for HSBC – and 2019 did not end on a high. News surfaced that long-serving head of its global banking and markets (GBM) division, Samir Assaf, was to be replaced. No official announcement was made and yet the lack of denials from the bank confirmed the story to be true.
It caught almost everyone on the hop. Only a very few people inside the bank knew that discussions were 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 to Stuart Gulliver as chief executive. He reportedly had some big names among the old guard backing his candidacy. He lost out to John Flint, who was himself unceremoniously jettisoned after 18 months in the job.
His looming job-downsizing creates quite a mess for HSBC. It currently has an interim chief executive, 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.
That is not a good look for a global systematically important financial institution. Regulators may have concerns. It’s probably not a situation that shareholders will enjoy much either.
Three weeks after the news about Assaf leaked, his replacements were named. The respective global heads of banking and markets, Greg Guyett and Georges Elhedery, will become co-heads of GBM. Guyett is a relatively new recruit to the bank, a JPMorgan veteran brought in to steady things after the ill-fated experiment of putting Matthew Westerman in charge of the business. Elhedery has held a number of senior positions at HSBC, including as chief executive of the Middle East, but has only been head of the global markets business for about a year.
Assaf will stay on at the bank, for now at least, in a new non-executive role as chairman of corporate and institutional banking. The changes take effect in March.
At the same time Quinn announced a number of other senior management changes that belie the interim nature of his position: a new chief risk officer, Pam Kaur, and a new chief operating officer, John Hinshaw. The latter will no doubt be working with Quinn on ways to cut HSBC’s headcount, much of which will likely be focused on Assaf’s old division.
What will Assaf’s successors inherit? In short, a decent business that has recently stalled. 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 in 2019. Markets have been tough for everyone, but HSBC has underperformed. In the second quarter, GBM produced revenues down 13% year on year, and profit before tax was down 44%. In the third quarter, the fixed income, currency and commodities 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 having something of a moment – as 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 is 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. 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 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 will 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.