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John Flint, chief executive of HSBC, has some much needed breathing space to put together his three-year plan for Europe’s biggest bank as it emerges from a scandal-plagued past.
Talking to the Financial Times in his first interview since taking over as chief two months ago, Mr Flint made it clear that his priorities were in moving HSBC back on to the front foot after several years of damaging scandals.
Mr Flint describes the bank’s Mexican money-laundering episode as a particularly chastening experience for the group. “We felt the trauma personally. We had a great crisis but then the deferred prosecution agreement effectively removed our pedestal. We were dragged back into the pack with the rest of the banks. The DPA took the wind out of our sails.”
In 2012, regulators found the bank guilty of financial crimes, including helping Mexican drug cartels launder money. HSBC had to pay hefty fines and operated under a DPA with the US Department of Justice for five years.
Ahead of briefing the board on the lender’s new strategy later this month and the bank’s first-quarter earnings on Friday, Mr Flint says that the episode “has made us more humble”.
“I was taught that if we [HSBC] ever made a mess of things there really was no one else to tidy up after us, an attitude that will continue to serve us well,” he says.
Mr Flint’s predecessor, Stuart Gulliver, needed to focus his efforts on fixing operations. Mr Flint has a different task ahead, according to analysts, with many of the problems now in the past. He is a life-long HSBC employee, whose working relationship with Mark Tucker, the bank’s first external chairman, will be key.
Mr Gulliver spent much of his seven-year tenure undoing the acquisitions of his predecessors, selling off numerous businesses and cutting a third of the staff in an effort to shrink a bank seen by investors as bloated.
At one point, the share price fell so low that Beijing-based ICBC, the largest bank in the world, drew up a proposal, seen by one senior HSBC staffer in China, to take over HSBC. That proposal never made its way to the HSBC board.
“Today, to acquire us would require a very large cheque,” says Mr Flint. “That is highly unlikely.”
Analysts expect Mr Flint’s strategy update to involve building up both the asset management and insurance businesses of the bank, especially in Asia. Both areas are considered subscale by HSBC standards.
Under Mr Gulliver’s time as chief executive, HSBC’s life insurance business was profitable, “but it has lost share in its key markets, especially Hong Kong. We expect renewed focus on this business,” according to Morgan Stanley’s Hong Kong-based bank analyst, Anil Agarwal. Further exits from some smaller retail banking operations are also expected.
Mr Flint faces increasing competition from ambitious Chinese financial institutions seeking international expansion, including Ping An Insurance, now HSBC’s second-largest shareholder after BlackRock Asset Management.
There are also new rivals in the form of fintech groups such as Alibaba and Tencent, both of which are far larger than HSBC.
The pair are already making headway in securing deposits and lending them out, as well as offering money market funds that pay out more than what HSBC offers customers.
In March, Hong Kong regulators released proposed guidelines for virtual banks for both existing financial players and non-financial companies, including tech groups.
“This presents a risk for banks’ market shares (and profitability), implying banks need to improve payment and other delivery systems quickly,” says Mr Agarwal, adding: “We would expect technology companies to take the lead in setting up these banks in Hong Kong, given the profitability of the retail base.” As the biggest incumbent, HSBC would potentially have the most to lose.
But Mr Flint says that the disruption from new players whether in payments or new products will take longer than many people think. He worries that new fintech companies focused on the provision of credit may be challenged should there be another credit crunch.
“Does everyone understand how the new system will work?” he asks. “Our immediate challenge at HSBC is to become really good at using technology to make it easier for our customers to bank with us. If we can master this challenge I think our future is bright, and that our industry will continue to help economies grow, and people prosper.”
Mr Flint is spending more time getting up to speed on technology, although he has already formed views on hotly debated new areas for banking such as cryptocurrencies.
“We went to hell and back with our DPA,” he says. “I have no interest in facilitating something which allows people to circumvent the system.”
Mr Flint also has to sell himself to his board, his staff and his shareholders. Despite being a HSBC lifer, he is a private person and many within the bank hardly know their new boss. He has long been seen to stand in Mr Gulliver’s shadow, which has led some members of the board to originally question whether he had leadership skills in his own right.
“He is keen to leave his mark,” says one Hong Kong-based director “He, like Stuart, has the values of HSBC at heart.”
Copyright The Financial Times Limited 2018. All rights reserved.
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Author: Henny Sender
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