“CALLING ITSELF THE LOCAL BANK MAY BE HSBC’S UNDERLYING PROBLEM!”

 

Since the halcyon days of Sir Willie Purves, after which Sir Stephen Green took over his dynasty as CEO of HSBC in 2004, this gargantuan bank has had not only global problems but also its senior management has endured one problem after another. Perhaps HSBC has spread its wings too widely across the world. I suspect it may have been too unwieldy to keep total control. Though HSBC is dominant in China, HK and the Far East, at one time it had substantial interests in the US, Africa, not forgetting a major investment in the UK, having bought Midland Bank in 1992 and having acquired other investment vehicles such as James Capel in 1986 to cover ‘Big Bang.’

In 2002, HSBC paid $14 billion for Household, as US sub-prime lender. In fairness to HSBC it flagged up the fact that sub-prime lending was going to be a major problem. Few listened. However, in the end Household cost HSBC in excess of $50 billion. Post the financial crisis Stuart Gulliver, who had spent most of his career in HK running its investment banking operation took over from Sir Stephen Green as CEO with Douglas Flint, who had been FD becoming chairman. Banking was a difficult industry. It was necessary to cut costs, make huge redundancies (circa 30,000) and ease back on investment banking. There were money laundering issues, which incurred a fine in the US of $1.9 billion in 1992. Then there was a problem with its Geneva subsidiary, which was also alleged to have been involved in tax-evasion issues.

The ‘local bank’ seemed too big to manage to many observers. Stuart Gulliver handed over to John Flint, another ‘lifer’ in 2018. He lasted 19 months before chairman Mark Tucker removed him from office for failing to deliver a decent return on equity close to 10% and replaced him with a temporary CEO in Noel Quinn – yet another lifer. I suspect HSBC should have looked away from its own management to get a different perspective.

Now HSBC is hugely committed to China, Asia and the Far East and has cut back its interests in the US and Europe. Today it announced disappointing results for 2019 with pre-tax profits down 33% to $13.35 billion after it took a goodwill impairment of $7.3 billion on a European growth re-assessment. Revenue was up 3% but expenses were up 22% to $42.35 billion. $4.5 billion annual cut in costs will be implemented. There will be no share buy backs in 2020/21. EPS came in at 30 cents. Some businesses will be sold. The return on equity was disappointing at 8.4% when the target was between 10-11%. Shares dropped 3% in HK this morning, In London it shares are down 7.6% in the past year to 592.19p

It remains to be seen if Mr Quinn will keep his job on a permanent basis.

David Buik

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