Squeezed by superpowers, HSBC eyes next step of reboot

Bloomberg

Caught in the crossfire between Washington and Beijing, HSBC Holdings Plc is fighting forces that threaten to upend a business built on connecting China to the West.
Chairman Mark Tucker is overseeing a sweeping review of HSBC’s US and European operations with an eye towards unloading businesses beyond repair, as doubts grow that 35,000 job cuts announced in February will be enough to revive the slumbering giant, say people familiar with the matter.
The stakes could hardly be higher for the London-based institution that earns almost all of its profit in Asia. The 155-year-old bank broke its silence last week over its role in the US pursuit of a Huawei Technologies Co. official after a barrage of Chinese media attacks. Executives have discussed their bind with the Bank of England and begun war-gaming potential disruptions to Hong Kong’s US dollar peg, as the worsening political situation endangers its appeal.
“What would be their raison d’etre if they weren’t global?” said Michael Geoghegan, chief executive officer from 2006 to 2010. “If you want to do business worldwide, you have to go to HSBC, Citigroup or one of a very small group of banks. I can’t see where they will benefit from shrinking their network.”
It’s been a miserable stretch for the company born as the Hong Kong and Shanghai Banking Corp. in 1865. A decade that began with the global financial crisis ended with the ouster of John Flint, Tucker’s initial pick as CEO, after just 18 months. In between, investors’ frustrations mounted over the languishing stock price, a pair of unsuccessful strategic reboots, and its failure to exploit a leading position in Greater China.
With the global recession darkening prospects for growth, the task of fixing or jettisoning low-return units while doubling down on Asia has gotten a boost from three new directors. They joined a board that spurned more extreme measures in Tucker’s February restructuring, which will cut about 15% of the work force and trim investment banking. The question is the potential damage to the East-West network that attracts clients like Amazon.com Inc.
That’s the riddle Tucker is trying to solve with new allies including James Forese, a former Citigroup Inc. veteran who joined the board in May after being approached about the CEO job. He has partnered with Tucker and Chief Financial Officer Ewen Stevenson in driving change. Alongside, CEO Noel Quinn has assumed a role akin to a chief
operating officer, insiders say.
HSBC’s shares fell 3.3% as of 1:49 pm in Hong Kong to the lowest level in more than a decade.
The obvious targets for boosting profits are the US, where it’s weighed down by a costly coast-to-coast branch network, and Europe, which accounted for almost half of its assets in 2019 but generated operating losses.
Expectations of more drastic action as soon as the August 3 announcement of first-half earnings are growing. Goldman Sachs Group Inc. analysts say the pandemic could push the bank to pursue “an even more ambitious restructuring.”
Amid the internal pressures, the complex political backdrop has only gotten trickier. HSBC was reprimanded in Washington and London over its support for China’s tough new security law in Hong Kong.
“Imagine a three-legged stool and those legs are being pulled apart,” said David Knutson, head of credit research for the Americas at Schroder Investment Management, an HSBC bondholder.
“Difficult decisions will have to be made that will have a significant, material impact on their future.”
What’s more, Tucker has spent so much time in the U.S. that the bank informed the U.K. authorities of his whereabouts. Having originally relocated from Hong Kong to London when he took the chairmanship in 2017, he received a 300,000-pound ($385,000) allowance for the move.
In the last year or so, he has effectively been based in New York, according to three people familiar with the matter who said the decision raised eyebrows among some executives.
“As the chairman of an international bank Mark Tucker spends his time between Asia, the U.K. and the U.S.,” said a spokeswoman for HSBC “There is no stipulation in his contract about where he has to live.” The Prudential Regulatory Authority declined to comment.
Wherever Tucker calls home, his focus will always return to Asia, which generated almost all of last year’s operating profit, and Hong Kong, which provides one-third of its global revenue.
Having worked for decades in the former British colony, Tucker is finely attuned to the background music, leading a renewed push into China. Tucker emphasized the importance of bolstering the U.K.-China relationship in remarks before the pandemic hit to an audience that included Beijing’s ambassador to London. “I believe that it can become even stronger, even more comprehensive, and even more mutually beneficial,” he said.
Last year, the bank launched a public-relations campaign targeted at the elite in Beijing. The plan envisaged everything from social media ads localised within 500 meters of government buildings to a relationship-building tour among the editors of mainland newspapers by a senior executive. More recently, along with endorsing China’s crackdown in Hong Kong, the bank has begun holding daily meetings to monitor how it’s portrayed in the local media, according to one person familiar with the matter.
In its first public comments about the matter, HSBC said it has no “hostility” toward Huawei and didn’t “ensnare” the company. The bank said it only provided information to the U.S. Department of Justice when it was compelled to do so.
“In response to the U.S. DOJ’s requests for information, HSBC simply presented the objective facts,” the bank said in a statement Saturday. “HSBC did not ‘fabricate’ evidence or ‘hide’ facts. And HSBC would never distort the facts or seek to harm any of our clients for our own gain.”