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There are two ways to read last week’s announcement from new HSBC boss Georges Elhedery that the bank will restructure and embark on a “simplification journey”.
One is dramatic. The embodiment of global finance, with operations in 60 countries (second only to Citigroup), is giving up on globalisation with its decision to split itself into a cluster of “eastern markets” and another of “western markets”. It is a move that sounds very similar to the Asia spin-off lobbied for by leading Chinese shareholder Ping An, which the bank successfully resisted last year.
The other reading is prosaic: this is just another exercise in tinkering with divisional boundaries — typical of a new chief executive seeking a way to trim costs but largely irrelevant to the way the bank operates and performs.
Investors seem to tilt overwhelmingly towards the nothing-to-see-here interpretation given a subdued share price reaction. Are they wrong?
The answer may depend on the likes of Xi Jinping and Donald Trump (if he is re-elected as the next US president). Any further escalation of the geopolitical split between the US and China — whether through extreme sanctions policies (as Trump has threatened), or military provocation (such as an invasion of Taiwan by Beijing) — will highlight once again just how much of a proxy HSBC is for the stability or otherwise of east-west trade and finance.
Since its founding by a Scot in 1865, HSBC’s business has always been about connecting the world, particularly greater China and the west. Six of HSBC’s top 10 clients in China are actually American, according to Elhedery.
In theory, the new structure could make a full-blown split of the group more straightforward in the event of geopolitical crisis. But at the same time, such a split would destroy much of HSBC’s raison d’être: yes, it has strong domestic retail and commercial banking franchises in its two core home markets of Hong Kong and the UK, but the current synergies that come from global connections would fizzle.
So much for the geopolitical hedge. What else does the restructuring achieve in the meantime? Current and former HSBC executives agree that the group’s notorious bureaucracy may be made more efficient by Elhedery’s removal of a layer of management at the regional level (there will be no Middle East CEO, for example, and no Europe CEO). Country heads will report directly to either the east or west leadership. The unwieldy executive committee will shrink from 18 to 12 members.
Unlike previous restructuring efforts, which have focused job cuts on relatively cheap junior bankers, the rejig could and should remove whole layers of inefficiency.
The other element of the restructuring, and supposed simplification, is the morphing of the current three global divisions into four (Hong Kong; UK; corporate and institutional banking; and international wealth). This again is partly about formally recognising what everyone has long known: that the group’s domestic UK and Hong Kong businesses are its dominant franchises. But expect, too, that the rationalisation of operations under Noel Quinn, particularly the withdrawal from low-profit retail banking markets, will continue.
At the same time Elhedery’s rejig also promises to eliminate “large parts of the matrix oversight”, according to a staff memo seen by the Financial Times. One former executive warned that a key benefit of the bank’s global oversight structures — forcing countries and regions to collaborate — could be sorely missed. “HSBC culture is very tribal and siloed so it will be challenging to serve clients and collaborate in the way many clients need,” the banker said.
More riskily, it’s worth remembering that the removal of one person’s bureaucratic interference is another’s safeguarding. Stuart Gulliver, who ran HSBC from 2011 to 2018, instituted a lot of the “matrix oversight” that Elhedery is demolishing, largely because little supervised country operations had sometimes run amok. The bank infamously had to pay a $1.9bn penalty in 2012 amid a US deferred prosecution agreement linked to its processing of Mexican drug money and Iran sanctions breaches. The CEO’s team insist he will maintain elements of global supervision under the new structure, including crucial risk monitoring.
As Elhedery’s tenure progresses, it will become clear whether his overhaul is dramatic or prosaic, smart or risky — unless of course Trump and Xi wreck his experiment first.
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