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
Next, the bank needs to decide whether it wants a serious position in Europe. It has a decent position in France, especially in the Paris region, and smaller operations in other places. But it is a long time since it has made a serious acquisition inside the eurozone. It needs to have a bigger presence in that market. One obvious candidate? Deutsche Bank is desperate to find a partner, and its lock on German business banking would be an obvious fit. If HSBC isn’t willing to take a risk on that it might be better off pulling out of Europe completely – there isn’t much point in being a marginal player.
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.