Features

HSBC is at a crossroads

The route HSBC takes next will determine whether it can remain a leader in global banking, says Matthew Lynn.

John Flint, former chief executive of HSBC ©Getty Images

Flint: we blinked and he was gone

The route HSBC takes next will determine whether it can remain a leader in global banking.

John Flint had only served for 18 months as chief executive of HSBC, one of the world's biggest banks, and had barely had enough time to make any changes to its strategy or operations, and then he was gone. On Monday morning, HSBC announced that he was stepping down and that an interim leader would be installed while it searched for a permanent replacement.

Flint's ousting may appear harsh. A long time HSBC banker, he rose to the top and the results that were released at the same time as the news of his departure were hardly terrible. HSBC chalked up a 16% rise in profits, and announced a $1bn share buyback programme. There is no crisis and no hint of scandal. Compared with most of its rivals across Europe, it is in robust health.

And yet its performance has been plodding. On Flint's watch, the shares have dropped by 17%. Since the start of this year they have drifted aimlessly while the rest of the market stormed ahead. Flint's plans for investing more in IT, for trying to turn around its American unit, and for concentrating on growth in China, were all worthy enough. But they were hardly setting the world on fire. His successor will need to make some hard choices.

First, he or she will need to decide whether its real opportunities are in Asia, Europe or the US. It is impossible to focus on all of them. More importantly, the bank needs to decide whether, in a world where China and the US are engaged in a bitter trade war, and where most of Europe is putting restrictions on Chinese investment, it can straddle that divide. It is great to be a bridge between East and West, but it may turn into a no-man's land. HSBC may have to split into Chinese and European/US wings, perhaps in a loose confederation with the same brand and similar shareholdings, but separate management.

HSBC needs to make some tough decisions

Third, HSBC needs to decide whether it can be both a retail and capital markets bank. It has managed to avoid the disasters in investment banking that have crippled the likes of Deutsche or Royal Bank of Scotland over the years. It has kept its investment bankers disciplined and focused on making money for the parent company. And yet the tension between the two types of banking remains. HSBC might be better off choosing retail and business banking and letting the investment bank go its own way.

Finally, it needs to make up its mind where the real growth in banking is. Over a century, HSBC has grown by taking stakes in different territories. But the real divide may not be between continents and countries, but between analogue and digital banking. Amazon and Google are now the real threat, along with dozens of new fintech companies. This may be the moment to make a radical break with the past and ditch branch networks completely.

HSBC came through the financial crisis relatively unscathed. In many ways, it has one of the best positions of any global bank. It has a strong retail presence in Britain and Hong Kong. It is one of the few Western companies with deep roots in China. It has at least a presence in every major economy in the world. HSBC has the assets to become potentially the most successful financial institution of the next decade. But it is at a crossroads and the new CEO needs to decide where it wants to go next.

Recommended

Gold will soon regain its shine
Gold

Gold will soon regain its shine

With the gold price down by 9.5% in the first quarter of 2021, it has been a rotten start to the year for gold.
9 Apr 2021
Why gold has been such a bad investment so far this year
Gold

Why gold has been such a bad investment so far this year

Gold – the ultimate safe haven investment – is proving anything but safe. It’s lost over $200 an ounce since its high at the start of the year. Domini…
3 Mar 2021
Gold will soon regain its lustre
Gold

Gold will soon regain its lustre

Despite roaring commodity prices and central bankers stoking inflation, gold is being left behind. But that won't last.
26 Feb 2021
Gold has had a tough start to 2021, but we’ve been here before
Gold

Gold has had a tough start to 2021, but we’ve been here before

Gold has had a disappointing start to the year – in an increasingly digital world, it’s the ultimate analogue asset. Nevertheless, says Dominic Frisby…
20 Jan 2021

Most Popular

How will Joe Biden’s capital gains tax rise affect crypto prices?
Bitcoin & crypto

How will Joe Biden’s capital gains tax rise affect crypto prices?

The US president wants to increase capital gains tax – and that’s going to hit a lot of American cryptocurrency speculators. Saloni Sardana looks at h…
14 May 2021
US stocks look expensive – here’s what to own instead
Investment strategy

US stocks look expensive – here’s what to own instead

Right now, US stocks are among the most expensive in the world. So if you want a decent return on your investments, you should look into diversifying …
17 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021