Advertisement
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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

Don’t panic about Iran – but don’t sell your gold either
Gold

Don’t panic about Iran – but don’t sell your gold either

Markets have reacted calmly to the tension between the US and Iran. But don’t get too complacent. It’s still a good idea to hold on to some gold as in…
9 Jan 2020
Here’s how gold could rise above $7,000 an ounce
Commodities

Here’s how gold could rise above $7,000 an ounce

That the gold price could hit $7,000 an ounce is a logical and plausible possibility, says Charlie Morris. Here, he explains how it could get there.
30 Dec 2019
Gold is in a bull market – and it could have much further to go
Commodities

Gold is in a bull market – and it could have much further to go

Many investors forget that gold is still the best-performing asset of this century, says Charlie Morris. It could also have much further to go.
27 Dec 2019
All the gold in China: money and power goes east
Economy

All the gold in China: money and power goes east

China has far more gold than official figures suggest – as much as America, in fact. He who owns the gold makes the rules, says Dominic Frisby.
15 Nov 2019

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020